Cosmetics chain Sa Sa posts decline in half-yearly profits on weak retail sales

Dwindling sales in HK, Macau hits turnover despite growth in company’s total sales transactions

PUBLISHED : Wednesday, 23 November, 2016, 9:47pm
UPDATED : Wednesday, 23 November, 2016, 10:33pm

Cosmetics retailer Sa Sa International Holdings posted a 37.3 per cent drop in profits for the first six months of this year amid a sluggish retail environment in Hong Kong and a continued decline in the number of mainland tourists.

The company’s profits fell to HK$96 million for the six-month period ending September 30, with turnover decreasing 4 per cent to HK$3.63 billion from the same period last year, according to a company statement.

Retail sales in Hong Kong and Macau, which make up over 80 per cent of Sa Sa’s turnover, slipped 3.6 per cent on weak mainland tourist numbers, as well as changes in consumer preferences and a strong Hong Kong dollar.

However, the company saw a 2.3 per cent growth in total sales transactions, after six consecutive quarters of decreasing transaction volume.

“Obviously, it could be better,” Guy Look, chief financial officer and executive director, told the Post. “In Hong Kong, we have tried for the last 15 months or so to gain market share, to increase competitiveness. I think what has been important in the first half of this year is that we feel we are moving in the right direction in terms of providing what the market wants.”

The company has observed a tapering off of the decline in mainland tourists to Hong Kong and Macau, signalling potential opportunities for Sa Sa.

If the tourist arrivals level off, the company is poised to capture greater market share and stabilise sales, said Look.

Sa Sa faced additional headwinds in the first half in its Singapore and Taiwan markets, where sales fell 11 per cent and 22.8 per cent respectively, putting a “drag” on overall performance, Look said.

As a result, the company is aiming to consolidate and downsize in those markets, with “a smaller presence but with more effective operations.”

Going forward, Sasa will target “aggressive” rental cuts of 40 to 50 per cent in Hong Kong and Macau.

The company considers it a good time to open stores in popular areas, where rents are plunging 40 to 60 per cent, chairman and chief executive officer Simon Kwok Siu-ming said during a media briefing on Wednesday.

Sa Sa hopes new stores in residential areas will capture more local consumers and will open more outlets in the New Territories, closer to the mainland border.

“It’s not just about Hong Kong, Macau, and China, it is also about how to tackle it,” Look said.

The company’s main strategic focus will be its online-to-offline (O2O) strategy, or the integration of its physical stores with its website sasa.com. In the first half, the website garnered 5.3 per cent of the company’s total turnover, a slight fall of 0.1 per cent compared to last year.

“We feel that O2O will increase our competitiveness and also enhance sales, and it opens up a lot of opportunities for us,” Look said. “It allows us to target new customers, retain old ones, do targeted marketing.”

This includes collaborations with Chinese e-commerce platforms such as Kaola.com and JD.com.

In addition to O2O, Sa Sa will continue to prioritise diverse product offerings by cashing in on a wider range of Korean cosmetics products, which they say are in high demand, and use new store formats to attract and retain customers, he said.

The company’s shares rose 4.12 per cent to HK$3.46 on Wednesday after the interim results.