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‘Severe downturn’ hits h2o+ parent

Water Oasis Group has boosted turnover and margin despite its mainstream retail chains suffering from a “severe downturn” in 2015.

The group has reported a 1.9 per cent increase in turnover to HK$691.7 million largely due to an increase in sales in its beauty services brands like Glycel and Oasis Medical Centre. Gross margin rose from 89.5 per cent to 90.9 per cent due to greater contribution from higher margin beauty services business.

But the result was impacted by by the challenges of Hong Kong’s retail sector and a decrease in sales due to the closure of its retail business in Mainland China, Taiwan and Singapore.

Profit rose 15.2 per cent to $52.5 million and the group has now increased the weighting of its business to 73.7 per cent beauty and 26.3 per cent retail.

Water Oasis has renewed  its h2o+ distributorship agreement for Hong Kong and Macau for five years through to the end of 2020.

“Both the group’s retail brands Erno Laszlo and h2o+ encountered a decrease in turnover partly due to the severe downturn in Hong Kong retail market as well as the closing down of the non-performing stores. The store consolidations of h2o+ non-performing outlets would expect to lead to improved performances for the brand over the year ahead,” the company said in its stock exchange filing.

The company said the “perennial challenges for Hong Kong businesses” – the high rental costs of doing business and the short supply of qualified staff and associated high labour costs – continued in 2015.

“This has been partly addressed by the grouping of related businesses adjacent to each other at the new flagship outlet in Central, which enabled us to maximise purchasing power and space efficiencies and allowed a more efficient deployment of staff. In addition, the group has benefitted from the fall in Mainland visitors to Hong Kong and the weakening of consumer sentiment which has contributed to a significant downturn in rents. The group expects to continue to do so as more leases come up for renewal. The changing rent patterns are enabling the group to review its retail locations, and it is actively looking to take up more prominent and visible retail store locations.”

Eight retail outlets were closed during the year, while five new outlets were opened in the same period trimming the group’s rental costs by 4.7 per cent.

The group has continued to make h2o+ its foundational brand and says it retains a strong and loyal customer base. The turnover for h2o+ for the year was down, partly because the number of outlets was streamlined over the year, from 15 at the end of September 2014 to 12.

“These store consolidations involved closing down non-performing outlets, and are expected to lead to improved performances for the brand over the year ahead.”

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