Hong Kong cosmetics retailer Sa Sa International Holdings Ltd's turnover rose by 8.4 percent in the first half of this year, but net profit fell 4.9 percent to HK$339.8 million in the same period. Provided to China Daily

Sa Sa International Holdings Ltd - Hong Kong's leading cosmetics retailing group - saw its turnover for the first half of 2014 rise by 8.4 percent to HK$4.23 billion, compared with the corresponding period last year.

However, net profit fell, losing 4.9 percent to HK$339.8 million, according to the group's interim results announced on Tuesday.

"Profitability was restrained due to gross margin pressures," Sa Sa said. "To sustain high growth in a slower market, Sa Sa has to rely on continual promotions and discounting to stimulate volume."

The gross profit margin declined by 2.4 percentage points to 44.6 percent for the six months ended Sept 30.

Although the group's combined turnover in Hong Kong and Macao rose by 9.8 percent to HK$ 3.43 billion, with same store sales rising 6.9 percent during the period, the average spending of mainland customers fell by 6.7 percent, weakening Sa Sa's constant growth advantage.

"There's a faster growth of tourists from lower-tier cities in mainland with less spending power, and same-day visitor arrivals grow faster than overnight ones," Simon Kwok, chairman and chief executive officer of Sa Sa said. "These visitors both tend to spend less per transaction, which has contributed to a lower ticket size among mainland customers."

According to Nielsen's latest survey report, the average actual spending among mainland tourists in Hong Kong has fallen from HK$24,832 last year to HK$21,914 in 2014, representing a 12-percent decline.

"Our survey found that 96 percent of mainland tourists claimed they will come to shop on their next trip to Hong Kong, but would spend an average of 10 to 20 percent less than in the past," said Eva Leung, managing director of Nielsen Hong Kong and Macao.

In the first six months of 2014, Hong Kong and Macao, as the overriding market, made up 81.3 percent of Sa Sa's retail and wholesale business, while mainland consumers accounted for 70.7 percent of the total sales of the dominant market.

"In response, Sa Sa plans to adjust its product offering strategy, and provide more lower priced goods, such as Korean products, for mainland tourists from third-and-fourth tier cities," Kwok said.

"We expect a high sales volume growth to reach an anticipated gross profit margin," said Guy Look, the group's chief financial officer.

Looking into the year's second-half performance, Kwok said the "Occupy Central" protests will exert some pressure on Sa Sa's performance in October alone, but considering that sales from early November have now seen a 4-percent growth amid a 30-percent rise in the number of mainland tourists, he thought the business will recover before the end of the year if the situation does not deteriorate.

gladdy@chinadailyhk.com

(HK Edition 11/19/2014 page6)