HK cosmetics chains profits hit as high-spending Chinese tourists cut back

Bonjour, Sa Sa profits hit by decline in spending power of mainland tourists

PUBLISHED : Monday, 19 January, 2015, 9:47pm
UPDATED : Tuesday, 20 January, 2015, 12:34pm

The final strut of mass market mainland spending that underpins Hong Kong's retail sector could be about to give way if crumbling profit margins at cosmetics chains Sa Sa and Bonjour are any guide.

On Friday, Bonjour posted a profit warning saying it expected net profit for last year to decline by 10 per cent to 20 per cent year on year owing to the falling spending power of mainland tourists, its main client base.

The story was similar at rival beauty retailer Sa Sa. Last week, Hong Kong's largest mass market beauty chain reported unaudited third-quarter sales to the end of December that showed flat turnover at HK$2.5 billion. The firm's sales in Hong Kong and Macau were down by 1 per cent and same store sales growth fell by 3 per cent. That compared to year-on-year growth of 9 per cent in the first quarter and 7 per cent in the second quarter.

Sa Sa chief executive Simon Kwok said retail sales were below company expectations.

"Although the number of transactions attributable to mainland Chinese customers grew by approximately 20 per cent, this growth was narrowed by the deepened decrease in average sales per transaction," he said. "Mainland Chinese tourists demand less high-priced products, resulting in a decrease in the average sales per transaction attributable to them."

While hard luxury items such as watches and jewellery suffered double-digit decreases throughout last year according to figures published by the Hong Kong Retail Management Association, cosmetics was a category that at least until recently was holding up. The slump for both firms came in December, a usual high season.

Both companies cited Korean cosmetics, a category that is rising in tandem with the popularity of Korean celebrities, as a reason for the smaller ticket size since Korean brands tend to be cheaper than Japanese or European labels.

A Nielsen study showed that last year mainland tourists spent on average HK$22,000 or 12 per cent less in Hong Kong compared to the year before.

Ninety-six per cent said they would return to the city for shopping, but spend 10 to 20 per cent less, said Eva Leung, managing director of Nielsen Hong Kong.