Hong Kong listed retailer Oriental Watch has reported a 2.5 per cent decline in sales – and a loss of HK$16 million in its full year result.
Total sales for the year were $3.032 billion.
Oriental Watch, which at the end of March had 80 retail and wholesale points in Greater China, including 14 in Hong Kong and three in Macau, blamed slowing mainland growth and falling tourist spending for the slip.
“China’s economy has undergone structural reform and a softened economic growth has been observed in the past two years,” the company said in its results announcement.
China’s official GDP growth of 6.9 per cent was the worst since 1990.
“Apart from being hampered by the bleak economic landscape, outbound Chinese tourists nowadays also altered their destination preferences due to the relaxation of visa policies in foreign countries and the depreciation of relative currency. The favourable exchange rates have encouraged Chinese tourists to purchase luxury goods abroad, such as Japan and other European countries. Meanwhile, the increasing number of social movements and the intensifying tension between Hong Kong and Mainland China have deterred Chinese tourists from visiting Hong Kong, thus further upsetting the luxury retail market,” Oriental Watch commented.
“Despite the difficult times ahead, Oriental Watch, as a traditional luxury watches company with extensive foothold in Greater China, will proactively implement stringent cost and inventory control strategies, as well as improve store efficiency to enhance our competitiveness and maintain stable financial position in the coming year.”
The company said high rents also hurt its bottom line.
“During the year, the group’s aggregate rental cost (excluding related property management fees) slightly increased by 1.3 per cent to HK$227 million, accounting for 42.1 per cent of the group’s overall operating expenses. Since 2014, minimising rental cost and optimising store efficiency have been the priority of the group.
We have been internally assessing the performance of all retails stores on a regular basis and closed down high-rent yet non-performing stores to achieve better resources allocation. Moreover, the pace of rental increase has been slowed down due to the sluggish market situation and the group views it as a positive sign to negotiate better rental rate in the upcoming lease renewal.
“We believe the above measures can enhance our average store profitability in the long run and alleviate the heavy financial burden incurred by the high rental cost.”
In other measures to address its bottom line, the group has introduced various inventory management policies, such as monitoring inventory level of high-ticket products and purchasing stocks only when existing inventory depletes to a pre-agreed level. The measure has resulted in a 12 per cent cut in overall inventory level to HK$1.57 billion.
Oriental Watch says it expects the conservative consumption pattern of local customers to persist which, together with the shift in Chinese tourists’ destination, “will inevitably affect the retail watch industry”.
“This year marks the group’s 55th anniversary and as a luxury watch retailer with extensive experience in the industry, Oriental Watch will stand firm to overcome the adversity ahead,” it concluded.