The cosmetics market in Hong Kong continues to face strong headwinds due to the slowing of mainland China tourist arrivals, their reduced spending, and weak local consumption sentiment.
Hong Kong-based skincare and cosmetics retailer Sa Sa International said last week that net profit dropped 55pc to HKD153 million (USD19.7m) for the six months ended on 30 September from HKD339.8m a year ago. Revenue fell 10.6 percent to HKD3.78 billion from 4.23b a year earlier. Retail sales in Hong Kong and Macau plunged 11.1 percent from HKD3.39b to HKD3.01b.
The weak performance of the group can be attributed to a series of negative factors in the retail market of Hong Kong. The one-visit-one-week policy for mainland visitors is gradually taking its toll on the market, while the strength of the Hong Kong dollar and depreciating yuan will continue to make shopping overseas more attractive for both mainland China and local consumers. Intensifying competition within the cosmetic industry is a further challenge, with ongoing discount and promotion programmes having an ongoing impact on profitability.
Although rental pressure is expected to moderate in a slowing market, rental reductions still lag behind weak sales performance. The beauty retailer closed three "Sasa" stores and three single-brand counters during the period.
Revenue for sasa.com declined 1.4 percent to HKD193.2m during the first half of the year. However, sales from mainland China rose 24.5 percent as a result of the shift of its focus in the China market, even though the performance was offset by a decrease in sales in other overseas markets. During the period, Sa Sa successfully partnered with Alipay in joint promotions to drive traffic and sales in the China market.
High-price house brand products, which make up a larger percentage of the house brand sales mix, underperformed since consumers preferred mid- to low-price products and Korean products. The group began to cater to the higher demand for Korean products by launching a wider range of Korean product offerings. As a result, sales of Korean products increased 28.9 percent in Hong Kong and Macau.
The cosmetics retailer expects the retail market of Hong Kong will be challenging in the coming year, In order to turn around the business, Sa Sa aims to undertake a few strategic measures which include diversifying its business, introducing new store concepts as well as new shopping experience.
Sa Sa will "develop other businesses beyond its traditional operations, including tapping the opportunities of O2O and cross-border e-commerce," it said in a statement.
The group’s O2O initiatives will initially launch in Hong Kong and gradually extend to mainland China. For the China market, the O2O initiatives will significantly broaden product offerings in its physical stores through online sales and cross border fulfilment. It aims to use different channels and to leverage a variety of online partners to increase online exposure, including operating physical stores to promote O2O in Free Trade Zones, and cooperating closely with major China online operators.
It also plans to introduce more trendy and lifestyle concepts to attract young and trend-setting customers, improve product display, and emphasise on enhancing the shopping experience.
"Sa Sa has a long track record of delivering outstanding success in all economic climates and in the face of the most severe headwinds and difficulties. We firmly believe that in spite of the current difficult business environment we are now facing, we can still turn challenges into opportunities and further consolidate our competitive advantages," said Simon Kwok, Chairman and CEO of the group.
"The flexibility of our business model, with an ability to rapidly adapt to new circumstances, markets and trends, will continue to support our position as a leading provider of beauty products in the Asia-Pacific. We also believe that the resilience and adaptability of our loyal staff and the forward vision of our outstanding management team will ensure that we deliver sustained, satisfying growth for many years to come," he added.