Affected by the continued downturn in the overall industry environment, chain cosmetics retailer Sa Sa International announced that it will close its iconic brand store in Tsim Sha Tsui, Hong Kong, and will not renew the lease.
benefited from its superior location and significant billboard design. This 650-square-meter Sa Sa store with a total area of two floors has always had a high passenger flow. Since 2011, Sa Sa has rented the store at a monthly rent of HK$500,000, and signed a renewal contract for HK$1.32 million at the peak of 2014. After 2017, the store’s monthly rent temporarily dropped to 900,000 Hong Kong dollars—calculated based on the cost. After the store closes, the group can save more than 10 million Hong Kong dollars in rental expenses every year.
but this is not enough to solve the problem. As the number of visitors to Hong Kong has dropped sharply and the business of stores in Tsim Sha Tsui has plummeted by 90%, Sa Sa said that the group will further reduce the number of stores in the area. Such a decline has a tendency to continue to spread and expand.
, which once moved towards internationalization, has Hong Kong as its center and has spread to many markets such as Macau, Taiwan, Mainland China, Singapore and Malaysia. Following years of declining performance, Sa Sa has repeatedly adopted measures such as closing stores and streamlining its staff structure to control operating costs.
In March 2018, the group decided to close the Taiwan business that has not achieved profitability for 6 consecutive years. The Singapore market, which also recorded losses for six years, followed closely. All 22 Sa Sa retail stores in the market ceased operations in December 2019. Citibank expects that the one-time expenses incurred by this move will This led to a loss of HK$289 million in the group's 2020 fiscal year. The
Group emphasized in the latest quarterly sales report that rental costs are one of the largest operating expenses. Therefore, in the next 18 months starting from January this year, Sa Sa will also close about 25% of its Hong Kong and Macau stores. However, in addition to continuing to close stores and reduce retail networks, Sa Sa may also reflect on its volatile profitability.
According to the group's 2019 interim results report, of the total sales of its Hong Kong and Macau stores, mainland Chinese consumers accounted for 66.5%, and local customers accounted for only 31.2%. The Hong Kong and Macau markets have accounted for more than 80% of the group's overall turnover in the past five years, which means that Sa Sa, which mainly relies on mainland tourists to drive sales, is in a rather passive position. The weakening of the RMB exchange rate, the outbreak of social events, and the closure of customs measures after the new crown epidemic have all had an obvious negative impact on its performance.
On the other hand, because the product suppliers are mainly from Hong Kong, Sa Sa can provide most of the daily chemical products on the market at a lower purchase price, which does have a price advantage compared to the counter price. But it is precisely this low-price strategy that enables Sa Sa to take the route of "small profits but quick turnover" while also supporting the group's previous continuous expansion of overseas stores, resulting in the overall "increasing revenue but not increasing profits" and the long-term low cash flow. Status-from 1.07 billion Hong Kong dollars in 2015 to 340 million Hong Kong dollars in 2019.
In order to stabilize cash flow and avoid further damage during the epidemic, all of Sa Sa’s executive directors have announced that they will cut salaries by 75% in the next three months and lay off no more than 3% of Hong Kong employees. However, Citibank still maintains a "sell" rating on the group and expects that its cost reduction measures will not be able to offset the sharp decline in sales during the quarter that led to the decline in profits. Although
has taken various measures to reduce costs, Sa Sa’s bigger problem lies in the lack of stability in its long-term profit model, and the fluctuations in performance are very obvious. After overcoming the current crisis of the epidemic, Sa Sa still needs to take a long-term plan and find a strategic way to truly balance revenue and expenditure.
