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Thursday, June 23, 2016, 21:42

Sa Sa, Luk Fook take hit as retail sales dive

By chinadailyasia.com

HONG KONG - Dwindling tourist numbers, particularly from the Chinese mainland, exacerbated by a stronger Hong Kong dollar, have continued to batter Hong Kong’s retailers, with the cosmetics and luxury-goods sectors hard hit.

Leading cosmetics chain Sa Sa International reported on Thursday a whopping 54.3-percent plunge in profit to HK$383.5 million for the year ended March 31, 2016, while Luk Fook Holdings, which runs the Luk Fook jewelry chain stores, saw its profit tumble 40.6 percent on-year to HK$959 million for the same period.

Both companies blamed subdued inbound tourism, a weaker renminbi and the appreciation of the Hong Kong dollar for their dismal performance, and vowed to rethink their business strategies to deal with the setbacks.

Sa Sa’s turnover for the 2015-2016 financial year reached HK$7.85 billion – down 12.8 percent from the previous year, as the group’s retail sales in Hong Kong and Macao slipped 14.2 percent to HK$6.23 billion, with same-store sales losing 11.8 percent. Gross profit margin dropped 2.3 percentage points to 42.6 percent.

Luk Fook Holdings posted an 11.9-percent drop in turnover to HK$14.03 billion, while gross profit margin dipped 0.9 percentage point to 23.2 percent. Same-store sales for Hong Kong and Macao retreated 20.1 percent, compared with the previous year’s 28.2 percent, and sales for the mainland market were down 8.2 percent against a 29.8-percent drop in the previous year.

Sa Sa International’s share price picked up 2.58 percent to HK$2.78 at Thursday’s close, while Luk Fook Holdings closed unchanged at HK$17.42.

The Hang Sang Index rose 0.35 percent to 20,868.34 points.

To cope with the challenging environment, Sa Sa said it will focus on local clientele. “We’ll continue to consolidate our store network in Hong Kong by reducing the number of stores in tourist districts like Tsim Sha Tsui and Causeway Bay, while adding outlets in residential areas,” said Sa Sa’s Chief Executive Officer Simon Kwok Siu-ming.

"We’ll not renew the lease of our stores in the tourist districts if the rent is reduced by less than 40 percent,” he said. Leases of 22 of the group’s stores are due to expire this year.

For the period from April 1 to June 19, however, the decline in Sa Sa’s retail and same-store sales slowed both in Hong Kong and Macao – falling 5.1 percent and 4.6 percent, respectively, compared with 8.8-percent and 6.8-percent drops in the previous year.

Luk Fook said it plans to focus on the mainland, and will open no less than 50 shops across the border this year to set up a sound retail network to increase market share. Last year, the group opened 46 stores last year on the mainland.

The jewelry chain will also optimize its retail network in Hong Kong by adding points of sale in residential areas, while cutting the number of shops in with unsatisfactory performance in prime locations.

Sa Sa has also created a new management team to place more emphasis on e-commerce to serve mainland customers. “I believe there’ll be a sharp rebound in our online business in the third quarter,” Kwok said.

"Our revenue generated by online retailing is less than 1 percent at present,” said Luk Fook Executive Director Nancy Wong Lan-sze, “We will actively develop online retailing, hoping to lift online sales revenue by more than 50 percent.”

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