Christmas spending is expected to help department store operator Sincere maintain full-year turnover at last year's level, according to managing director Philip Ma King-huen.
He was optimistic about next month's Christmas sales, saying the firm's second-half performance should be better because the preceding period had been adversely affected by last year's terrorist attacks in the United States.
Sincere saw its sales decline by up to 5 per cent as of October 31 against a 10 per cent drop in the five months to July, he said.
'We are confident the sector is going to improve next year and get better in 2004,' he said.
But he said retailers were still under great pressure to offer deeper discounts to drum up business.
He said average prices for Sincere products had been marked down by 10 per cent to 15 per cent in the past two years as a result of weakening buying power in the deflationary economy.
'In the good old days, the best sale item was men's shirts priced at between HK$700 and HK$800 each but now the most popular price for the same item ranges between HK$400 and HK$500,' he said.
'Now, we can generate higher sales volume but the amount of dollars is no longer the same,' he said after Sincere launched a promotional game with a HK$500,000 grand prize and shopping coupons to generate sales.
Mr Ma said Sincere's gross margins had been eroded by 3 percentage points due to high operation costs.
Rental, utility charges and wages accounted for a combined 27 per cent of its turnover. Rental charges, which remained Sincere's biggest expense, took up 18 per cent of its turnover. Mr Ma felt a reasonable level would be 12 per cent.
It plans to ask its landlords to reduce the rent for its Central and Mongkok shops when leasing agreements come up for renewal early next year.
Leases on the two shops were signed at the peak of the market, in 1996.
To streamline operating costs, he said Sincere's staff level had been halved to 300 people in the past two to three years.
'In order to maintain our standard of customer service, we will hire extra part-time sales staff during peak shopping seasons,' he said.
It had cut its debt level to HK$300 million.
Mr Ma said Sincere would next year expand its business to the mainland through its newly opened European design furniture operation.
The first furniture store was likely to open in Shanghai.
September 11 impact on first-half sales no more than a memory
Staff numbers and debts trimmed back
Sector showing growing signs of improvement