From its humble beginnings as a stall in a Tainan market, Poya International Co. has built a flourishing business that achieved a new milestone in 2015, surpassing NT$10 billion in annual sales for the first time.

Emboldened by its success, Poya has decided to take on the two giants of Taiwan's cosmetics, beauty products and drugstore sector – Watsons and Cosmed – and build up its presence in Taipei after being relatively quiet for 10 years with a strategy of "encircling the city from the countryside."

And so it was that a new face appeared on the scene in Taipei's high-rent Yongkang commercial district last month, identified by its standard pink signboard on a building near the Dongmen MRT station. The company's trademark, a goddess donning a laurel wreath, seemed to have her eyes set on bustling Xinyi Rd. and the towering Taipei 101.

The scene symbolizes the determination of the southern Taiwan retail power to assert itself in the country's capital. Aside from setting up shop in the touristy Yongkang area, it is also planning a new location in Taipei's Songshan District this year.

Poya's move into major battlegrounds to fill in the remaining gap in its island-wide network after amassing the requisite momentum should not come as a surprise, considering its recent performance.

In 2015, the company's revenues grew 16.6 percent to NT$10.69 billion, achieving double digit sales growth for the third straight year, an impressive showing given that Taiwan's retail sector has averaged 2.1 percent sales growth during that same period.

While rent will take a bigger slice of sales in Taipei than in southern Taiwan, the company accepts the higher cost because of the heavy foot traffic in the capital city, says Poya's spokesman and manager of the Finance and Accounting Division, Shen Hong-yu.

This awareness indicates that Poya is finally prepared to do battle in Taipei. Around 1998, it set up its first store in the city in the Tonghua commercial circle, but the outlet was later shut down because of a big increase in rent.

Poya opened another Taipei store, this time on Minsheng E. Rd., in 2007, but has been relatively quiet since then. Now, nearly 10 years later, the company has decided to target the high-rent, high-traffic, intensely competitive Yongkang area as its new base in the city, despite being surrounded by Watsons, Cosmed and other rivals.

Poya seems undaunted, ready to compete for female customers with its standard formula – a big space of more than 400 pings (1,322 square meters), more than 45,000 items in stock and low prices. On its opening day, the new store attracted huge crowds of people stuffing cosmetics, hair accessories, underwear and other products into their shopping baskets.

The scene would have been hard to imagine about 30 years ago, in 1985, when Poya started as a street stand selling accessories for women's hair. So how has it become a star retailer able to compete with chains such as Watsons, a foreign-based global brand, and Cosmed, operated by Taiwan's retail Goliath the Uni-President Group?

A retailer who has long observed Poya's ascendance attributes the company's success to reforms it took years ago and says it is poised for a steady take-off.

"Now it's just a matter of following a scheduled plan and continuing to open new stores and make money," the source says.

The main driver of the company's reforms was Poya General Manager Chen Zong-cheng, the son-in-law of Poya Chairman Chen Chien-chao.

“He (Chen) is willing to work hard and go for broke, (an attitude) that turned Poya from a country boy into an adult,” says Lyu Jr-jung, a professor in National Cheng Kung University’s Department of Industrial and Information Management who got to know Chen Zong-cheng through a Ministry of Economic Affairs project.

The 51-year-old Poya general manager was a computer engineer before getting into the cosmetics and drugstore business in 1993 when he started with Poya as a store manager. By 2000, he had taken over as general manager. His daring personality, which echoes his passion for sailing and riding the wind and waves, turned Poya into an "adult" through three bold strokes.

Store Strategy: Encircling Cities from the Countryside

Continually expanding its store network was Poya's first step in "becoming an adult" and the key to its sales growth.

In 2000, Poya devised a store strategy of "encircling the city from the countryside," which consisted of first building a base in second- and third-tier cities with lower rents, even to the point of having its own stores compete with each other to keep competitors out. The strategy quickly expanded the company's market share.

In the city of Gangshan in the Kaohsiung area, for example, a CommonWealth reporter noticed three Poya stores in a span of five minutes while in a taxi, prompting even the driver to ask: "The stores are so close together. How can they make money?"

In fact, although Poya may have a dense network in these smaller cities and towns, the stores run high margins. Gangshan, a 40-minute drive from downtown Kaohsiung, has been the site of Poya's top store, which generated monthly sales of more than NT$12 million while paying only NT$200,000 in monthly rent.

A former Poya employee explains that the key to the company's high profits are its low costs of doing business in southern Taiwan, its considerable bargaining power derived from its extensive retail network, driving down its cost of goods, and increases in the slotting fees suppliers pay to get their goods on Poya store shelves.

Poya's new stores normally become profitable about two months after opening on average, says Poya's Shen, making it easy to continue opening new stores and maintaining balance in the company's operations. By the end of 2015, Poya had 130 outlets around Taiwan, and it added seven more stores in the first four months of 2016, about one every three weeks.

This steady expansion, which the company hopes will one day result in a network of 400 outlets, is posing a threat to its competitors. "When it (Poya) is doing well, we're not doing well," says a representative of one of Poya's competitors.

Business Strategy: New, Plentiful, Distinctive

Another of Poya's strengths in appealing to consumers is constantly creating "new" consumer experiences while stocking "plentiful" and "distinctive" products.

First, Poya works at staying "new." In 2012, Poya introduced its fourth-generation store, offering 30 percent more types of products and improving the flow of shoppers in the store, leading to a 10 percent increase in sales. This year, Poya has launched another generation of stores that include an area where people can try different kinds of makeup, creating a new consumer experience.

"We hope the fifth-generation stores can encourage customers to like Poya and enjoy shopping even more than before," Shen says.

Second, the company makes "plentiful" choices a top priority. The 400-ping space favored by Poya can stock nearly 45,000 different items, nearly double or triple the number carried in most Watsons and Cosmed outlets.

"The wide variety means consumers can do all their shopping at one time, and it also gives shoppers the pleasure of making choices," Shen says. Poya has won over shoppers with its broad range of products, from cosmetics and stationary to snacks.

Third, Poya may offer cheap products, but it also sells goods that are "distinctive" from the competition. Unlike most retail chains that focus on "fast moving consumer goods," Poya gives consumers access to goods that don't fly off shelves, Shen says. Its choice of socks, for example, may be the most complete of any single retail outlet in Taiwan, especially its selection of children's socks that mothers find appealing.

One industry insider explained that fast moving consumer goods such as body wash and shampoo have become retailing "red oceans" suffering from cutthroat prices. But 60 percent of Poya's products involve items such as hair accessories, underwear and socks with big 30-40 percent margins, carving out an important niche for the company, the insider said. 

Management Strategy: Information, Institutionalization

A fast-growing network with tens of thousands of items cannot be managed solely using old methods, and the introduction of information and management systems has helped Poya successfully grow from a local retailer into a national chain.

After Chen Zong-cheng took over as Poya's top executive, he relied on his engineering background to improve the company's POS (point of sale) system and business intelligence system and worked with suppliers to create a CPFR (collaborative planning, forecasting and replenishment) model.

These advances helped Poya stay on top of sales and inventory along with shifts in market preferences with a high degree of accuracy. They identified, for example, the 10 top-selling items at any one time, ensuring that there was adequate inventory of those goods to meet consumer demand.

Setting up a retail presence across the country requires ample and stable sources of supply. To handle and replenish orders from its many outlets, Poya set up a logistics center in Taoyuan in 2012 and plans to open another one in southern Taiwan next year, moves it hopes will make its operations more efficient.

These information and management systems may seem par for the course for foreign companies or large-scale chains and distributors, but they actually represented a major breakthrough for a local retailer that started from nothing.

National Cheng Kung University's Lyu explains that setting up systems and hiring consultants costs money that companies in central and southern Taiwan have been unwilling to spend.

"But he (Chen Zong-cheng) was very energetic at the time and put in place entire systems that made a difference in the next few years. 

One supplier who has had contact with Poya for more than 10 years observes that the changes instituted helped the company gradually pull away from the two major cosmetics and beauty products players in southern Taiwan at the time – Meei Hwa Tai Enterprise (Mirada brand) and Ming Chia Mei – and help it chase Watsons.

Unable to keep up, Ming Chia Mei closed its doors in 2014

"Poya has built a strong foundation, so it's not surprising that it's growing so fast now," the supplier says. 

With rapid expanding chains, however, quality management can always be a challenge. In January 2015, a former employee charged that Poya allowed suppliers to change product labels and supply items past their expiration dates so that it could keep costs down and make more money.

Poya then sued the former employee for slander, but a court in Taichung found the defendant not guilty in March. The court said there was evidence that Poya did in fact sell products in its stores with false labels and noted that the former employee had even tried to get the company to change its policy, to no avail. The charges and the court case have hurt Poya's image.

The company has come a long way since hawking hairpins at a stall in a Tainan market, and it is now embarking on a new voyage in Taiwan's capital city, ready to go head-to-head with the country's biggest cosmetics players. Even with its past success, however, it clearly has many challenges still to overcome.

Translated from the Chinese by Luke Sabatier