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Pressure grows on International Housewares

A discount-driven marketplace necessitated more promotions and markdowns, placing pressure on profits for Hong Kong-listed retailer International Housewares.

However, continued steps to streamline logistics as well as bargaining for more favorable pricing allowed the group to offset much of this pressure and maintain a relatively stable gross-profit margin, the company says in its 2015/16 interim report.

For the six months ended October 31, revenue reached HK$960.46 million (US$123 million), representing 6.6 per cent growth. Despite subdued consumer confidence, the group’s comparable store sales in Hong Kong grew 7 per cent, as against 10 per cent in the previous year. Gross profit rose 5.2 per cent to HK$446.58 million, while the gross-profit margin decreased slightly to 46.5 per cent.

Its revenue growth overall is attributed to growth in sales – not only in the number of transactions, but also in the average spending per transaction. The group also widened its variety of products to capture additional market opportunities and expand its customer base.
At October 31, the group had 368 stores worldwide – in Cambodia, China, Hong Kong, Indonesia, Macau, Malaysia, New Zealand, Saudi Arabia and Singapore.

Continually rising rents and staff costs saw operating expenses increase from 42.5 per cent to 44.9 per cent. The company says the increase in rental expenses was “significant”, especially as these constitute a great proportion of operating expenses. Weak consumer sentiment in Malaysia and Singapore, plus an exchange loss because of the depreciation of the renminbi, contributed to a 52.9 per cent decrease in profit attributable to equity holders.

“We can open new stores with less prime retail space and thereby control our rental expenses as we expand,” says the group. “We are also able to rent retail spaces of varying sizes, which gives us more flexibility.”

To mitigate the effects of increasing employee expenses, the company has training programs to maximise productivity, and employees may be redeployed to different stores from time to time to further maximise productivity.

In spite of these adverse dynamics, the group has had record high sales, with costs and expenses maintained at a manageable level.

Positive about the mid- to long-term business prospect, the group plans to continue expanding in Hong Kong, Macau and Singapore and Macau. It will continue to restructure its store portfolio in the overseas markets “in a prudent manner” by closing underperforming stores.

Three stores closed between April 20 and October 31, leaving 357 stores directly managed by the group and 11 licensed stores. Hong Kong Hong Kong remained the key market, representing 84.9 per cent of revenue, with a record high of HK$815 million for the period.

There was only slight growth in revenue (0.1 per cent) in Singapore in the face of conservative consumer spending. However, the group sees Singapore as an important market and will continue in its efforts to expand there.

With a 13 per cent drop in revenue in mainland China, the group has reviewed its store network, with under-performing stores being “consolidated”. Revenue was down 55.9 per cent in west Malaysia, while there was a 16.6 per cent increase in Macau.

Moving ahead, the group describes the market as challenging, and will undertake marketing initiatives and promotional campaigns to strengthen its presence in Hong Kong, Macau and Singapore.

Meanwhile, the group has launched its e-commerce business, the JHCeShop, in Hong Kong. It is also continuing to showcase, promote and market products through mobile apps and social media platforms.

Another innovation is the fixed-price store 123 by Ella, in Wong Tai Sin. Launched in November, it is a “sample and fast consuming” concept offering trendy and personal merchandise at a range of fixed prices. The company’s JHC HomePass membership program continues to encourage repeat purchases and attract new customers. At October 31, the scheme had more than 300,000 members in Hong Kong, accounting for about 13 per cent of retail business there.

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