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Cosmetics seller Sa Sa International is making a comeback to some of Hong Kong's prime shopping districts where it can secure big rental discounts, after the retreat of luxury brands amid a softer retail market.
Sa Sa, Hong Kong's largest mass-market cosmetics chain, was seeking rental reductions of at least 40-50% for shops in tourist districts, after it regained two outlets in the shopping hubs of Causeway Bay and Mongkok recently at less than half the amount currently paid.
Despite a retail downturn, Causeway Bay remains the most expensive place for retailers in Asia with an average annual rent of $2,878 per square foot in June. Globally, it is only behind New York's Fifth Avenue, according to property consultancy DTZ/ Cushman & Wakefield.
"We were among the first to leave because of competition from luxury retailers. Now it's time to be back in prime locations to raise our brand awareness," Sa Sa Chairman Simon Kwok Siu-ming told reporters on Wednesday, adding that rental reduction was less significant in shopping malls with better traffic.
With a network of 281 stores across mainland China, Singapore and Malaysia, the group is also looking to reposition itself in its home market. In Hong Kong, it is relocating some stores to areas closer to the border with mainland China as well as residential malls to target local customers.
Sa Sa's move came as it saw signs of easing in the sales slowdown despite an earnings plunge. Net profit tumbled 37.3% on the year to $96 million Hong Kong dollars ($12.4 million) in the six months ended September, in line with its profit warning issued in October.
Sa Sa International Chairman Simon Kwok Siu-ming, center, announces the company's first-half earnings on Nov. 23. Photo: Jennifer Lo
First-half group turnover fell 4% to HK$3.63 billion, the lowest first-half revenue since 2012 although its quarterly sales began to stabilize. Sales in Hong Kong and Macau stores that had been open for at least a year grew 0.1% year-on-year in the third quarter, up from -4.8% and -2.5% in the first and second quarter respectively.
"At least we are starting to see some stabilization," said Kwok, but he added that it was too early to expect a strong rebound in the retail market.
Hong Kong's retail sales in September slumped for the 19th month in a row although the contraction began to narrow with a smaller decline in mainland Chinese arrivals. Cosmetics and medicines were among the few brighter spots, which saw year-on-year sales growth of 1.7%, according to official data. Sales of jewelry and watches were hit harder, down nearly 12% thanks to China's wider economic slowdown and anti-corruption campaign which stifled demand for luxury goods.
While Sa Sa is one of the latest to reap the rewards of a major reshuffle in Hong Kong's retail scene, some luxury retailers are making a retreat from major shopping districts after a decade of aggressive expansion to capitalize on the mainland tourism boom.
A Sa Sa store in Causeway Bay Photo: Jennifer Lo
Chow Tai Fook Jewellery, one of the world's largest publicly listed jewelry chain, would shut down another two to three shops in Hong Kong's tourist areas before April after six closures. "The pie is much smaller these days," said Chairman Henry Cheng Kar-shun, on Tuesday, referring to a more saturated jewelry market that justified shop closures ahead.
But the jeweler seems to have a common interest with mass retailers like Sa Sa. "If we were to open shops, our strategy would be in local malls," said Managing Director Ken Wong Siu-Kee.(Nikkei)
