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Fashion retailer Veeko culls stores as it posts loss

Fashion and cosmetics retailer Veeko, which owns the Colourmix and Morimor cosmetics store chains, has reported a sales decline of 9.4 per cent in the last financial year, to HK$2.017 billion.

And it has turned a profit of HK$58.9 million in 2016 to a loss of $25.89 million in the last year.

Sales in its cosmetic stores, which account for 79.5 per cent of turnover, fell 6.9 per cent to $1.6 billion while fashion store sales fell 17.9 per cent to $413 million.

The gross profit margin of fashion business was 67.1, up from 65.5 per cent the previous year, but the gross profit margin on the cosmetics business fell by 1.8 percentage points to 32.8 per cent.

Cosmetics business

As at March 31 Veeko International had 90 Colourmix stores, five more than a year earlier, 85 of them in Hong Kong, four in Macau, and one in Mainland China. Morimor, an upmarket skincare and beauty concept launched in Hong Kong in August 2015, grew from one store to seven.

The cosmetics business recorded a segment loss of $14.6 million for the year.

“As a result of the rapid growth experienced in the past consecutive years, a considerably high base has been accumulated for the cosmetics business. With a reduction in sales figures due to the persisting weakness in the retail market and overall consumption environment in Hong Kong as well as a drop in the number of inbound visitors to Hong Kong during the year under review, the group had to stimulate sales by offering multiple promotional discounts and organising marketing activities, which led to reduced gross profit margin and a significant decrease in segment result as compared with the same period last year,” the company said in its earnings statement.

Fashion business

At the end of March, Veeko International operated 119 fashion stores in Hong Kong, Macau, Singapore and Mainland China under the Veeko and Wanko banners, with nine closing during the year.

“The decrease in the number of stores as compared with the same period last year was mainly attributable to the restructuring of its retail network by the group in overseas markets, particularly in Singapore and China, to alleviate the negative impact on the overall results of fashion business in the future,” the company said.

The Hong Kong retail market was “extremely weak”, resulting in a decline of 17.9 per cent in the turnover of the group’s fashion business. But tighter control of production costs boosted the gross margin to 67.1 per cent.

The fashion business recorded a segment loss of $8 million, 9.6 per cent narrower than the previous year’s segment loss.

Sales in Hong Kong and Macau, which accounts for 87.1 per cent of the company’s fashion business, fell 10.2 per cent year-on-year.

Sales in Singapore fell 21.8 per cent, after Veeko shuttered three of its eight stores there.

“Over the past few years, the market environment in Singapore has been very challenging, and the group has closed down under-performing stores to alleviate the negative impact on the overall results of the fashion business.”

Sales in Mainland China reached $27.15 million, down 15.1 per cent, mainly due to a reduction in the Veeko and Wanko store network from 38 to 29.

Veeko says it will continue to adjust its store portfolio in response to market conditions.

“Given the slowdown in the retail market with declined rental rates in prime districts, the bargaining power of retailers are enhanced and therefore it helps reduce the rental pressure for stores with expiring lease terms. The group will close down certain stores with low performance and open new stores in prime locations, with the expectation that there will be additional rental savings in the coming year.”

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