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Online turns profitable for Sasa as Covid weighs on physical stores

(Source: Bigstock.)

The impact of closed borders between Mainland China and the Hong Kong and Macau territories remains a major challenge for Hong Kong-based beauty retailer Sasa International. 

Despite closing unprofitable stores in Hong Kong tourist areas, pivoting towards serving the domestic market ahead of foreign visitors, and developing a profitable digital business, the company has reported a 24-per-cent decline in same-store sales during the first half-year. That resulted in a 25-per-cent lower loss quarter on quarter. Group sales totalled US$205 million, the majority of that in Hong Kong and Macau, while its loss reduced to $23.3 million. 

In a stock exchange filing, chairman and CEO Simon Kwok said the company weathered the “unprecedented impact” of the pandemic through stringent inventory and cost management, while strategically investing in its online and mainland businesses, both of which show “promising growth potential”. 

Sasa’s online business now accounts for 19.2 per cent of overall sales, and the mainland retail business 9 per cent. The company closed a net nine stores in the territories during the September half, leaving it with 91, or 15 fewer than at the same time a year ago. But on the mainland, the network grew from 48 to 69 during the year. 

Online sales soared 65.2 per cent year on year and on sales of $39.5 million recorded its first profit as a division, of $154,000. 

In Malaysia, its only remaining market outside Greater China, and which accounts for just 3.8 per cent of overall sales, turnover was down by 53.7 per cent to $7.7 million due to ongoing government-mandated store closures and social-distancing measures during the pandemic. Its store network was cropped by four to 73. 

Looking ahead, Kwok said the company is committed to building on a “customer-centric” principle that has been the foundation of the company’s success. 

“Our physical stores will strengthen their function of providing customers with a richer in-store experience of our products and services, and in doing so, attract new customers, extend the staying time of customers in stores and increase the frequency of customer visits. Our online touchpoints will interact with customers and provide an around-the-clock shopping experience for consumers who have already shifted to online shopping, as well as serving as additional touchpoints for our existing physical store customers.”

He said the group is working to further integrate its online and offline operations to provide a “comprehensive seamless customer experience”.

“One of the advantages of the online business is that its fixed costs are relatively lower, and we can also save on the rental expenses (among our top three expenses) that brick-and-mortar retailers have to bear. The O2O business model enables the group to move towards a leaner cost structure and lower the breakeven point of its traditional retail business.”

Such focus will accelerate the group’s return to profitability, reinforcing its overall competitiveness and profitability long term, he said.

Sasa’s long-term target is for its businesses apart from its Hong Kong and Macau physical stores to account for more than 50 per cent of the group’s turnover.

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