Hit by falling sales in the tourist downturn, Hong Kong beauty retailer Sa Sa plans new store concepts and diversification to restore growth.

Reporting a 10.6 per cent decline in sales to HK$3.778 billion in the first half of the current year, and a 55 per cent plunge in profit to $153 million, Sa Sa revealed a strategy to “develop other businesses beyond traditional operations”, including tapping the opportunities of O2O and cross-border eCommerce.

“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 fulfillment. The group 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, all with their unique positioning and correspondingly different opportunities,” the company said in its interim report.

New store concepts are also on the drawing board.

“The group’s strategy for new store concepts includes introducing more trendy and lifestyle concepts to attract young and trend-setting customers, much improved product display, and more emphasis on enhancing the shopping experience.”

Sa sa says it also aims to place more emphasis on the unique shopping experience with Sa Sa through improved product displays, while changing the mindset of its beauty consultants to one that is more receptive to consumer preferences.

“In addition, the group will substantially strengthen its online marketing efforts, including the use of social media channels to improve interactivity.”

Hong Kong & Macau

Sa Sa says its first half year was marked by pressure from a series of negative factors in the retail market of Hong Kong during the first half of the year. Retail sales in Hong Kong and Macau decreased by 11.1 per cent to $3.010 billion.

“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. 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,” the company reported.

“Although rental pressure is expected to moderate in a slowing market, rental reductions still lag behind weak sales performance. In the face of these challenges, The group rationalised its retail network from 287 to 281, a net decrease of three stores each for both “Sasa” stores and single-brand counters.”

Mainland China

In Mainland China, the stores’ profitability continued to improve, but weak operational and product management led to a decline in turnover, as well as an increase in the inventory provision. Overall turnover for Mainland China operations decreased to HK$148.9 million, a decrease of 8.7 per cent in local currency terms, while same store sales growth in local currency decreased by 9.8 per cent for the period. Loss for the period amounted to HK$24.5 million. The group has recognised the need for more management resources to improved management, and is currently using external management resources on a contract basis to allow for more time to develop its own management structure and training. The group is also seconding experienced staff from Hong Kong to improve attractiveness of product offerings and inventory management.

Taiwan

Turnover in the group’s Taiwan business decreased to HK$130.2 million during the period, representing a drop of 2.2 per cent in local currency terms. Same store sales fell 8.7 per cent in local currency. The number of mainland China consumers in Taiwan is expected to increase in view of the country’s enhanced infrastructure and retail space, and the introduction of unlimited visa quotas for high-end Mainland Chinese tourists who have greater spending capacity. The group has already opened stores in tourist locations to tap the potential of increasing in mainland Chinese tourist arrivals.

Singapore & Malaysia

Flat sales across the Sa Sa Singapore network has prompted a rethink of the brand’s local network.

In the first half year, Sa Sa reported turnover of HK$112.8 million (S$20.445 million) in Singapore, remaining flat in local currency terms over the same period last year.

“The group will continue to build scalability and profit potential by closing inefficient stores and opening stores in new malls with good potential,” the company said in its interim trading statement.

Meanwhile, turnover for Sa Sa Malaysia was HK$141.9 million, an increase of 2.5 per cent in local currency terms over the same period last year. However, same store sales decreased 8.5 per cent in local currency.

“Sales and profit growth were restrained by the implementation of GST [on April 1], which adversely impacted store productivity during the transitional period. This effect is expected to be normalised in the second half.”

Chairman’s view

Chairman and CEO Dr Simon Kwok put on a brave face on the results:

“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. 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.”