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Cosmetic problems: Sasa looks to make-up for poor China sales

  • Staff Reporter
  • 2012-06-20
  • 10:18 (GMT+8)
The Sasa Fragrance Awards 2012. (File photo/CNS)

The Sasa Fragrance Awards 2012. (File photo/CNS)

Sasa International, a producer of cosmetics and healthcare products based in Hong Kong, has continued posting healthy growth but the chain is still searching for ways to turn around its seven-year losing streak in mainland China in spite of accelerated expansion.

The company, set up in 1978 and traded on the Hong Kong stock exchange, runs 240 stores throughout Southeast Asia, and also in Taiwan where it opened its first overseas store.

The company reported strong growth of 30.7% in sales to HK$6.41 billion (US$826 million) for the fiscal year 2011 ending March 31 from HK$4.914 billion (US$633 million), with a 35.4% gain in profit to HK$6.9 billion (US$889 million) from HK$5.93 billion (US$764 million).

Its sales in Hong Kong have been bolstered by the influx of mainland Chinese visitors, who have come to outnumber local residents and enjoy shopping sprees in the special administrative region.

Mainland visitors to Hong Kong increased by another 24% in 2011 with average expenditure rising 28.4% by those who come on a multi-day trip and 36.4% by those who simply came to shop for a day. Inflation in China and the strengthening of the renminbi are among the factors for increased spending in Hong Kong.

Sasa has clearly set the huge domestic market in the Chinese mainland as its primary target for fast expansion. Its sales in the mainland market registered a growth rate of 99% in 2011 to hit HK$2.91 billion (US$375 million), but operating losses remained high at HK$18.5 million (US$2.38 million).

The revenue growth came mainly from the aggressive expansion as Sasa opened 28 new stores last year, doubling the number in 2010, although it also closed six, according to the Chinese-language National Business Daily.

As of March 31, the group operated 48 Sasa stores plus 20 "Suisse Programme" beauty service counters in 26 major cities throughout the mainland. Sasa opened its first two stores in Shanghai in 2005. The number of new stores set up in 2011 exceeded the total in the preceding six years. But the poor performance in the mainland market reflects the tougher price competition in cosmetics retailing, as Sasa stores lose the duty-free advantages enjoyed by shoppers visiting Hong Kong or neighboring Macau.

In addition to the loss of competitive edge of lower prices without taxes, the products on display at Sasa stores in China still lack premier international brands, said a securities analyst monitoring the cosmetics retail sector. In order to stand out in the crowded mainland market, Sasa needs to distinguish itself with unique characteristics, he said.

Sasa is seen to be adopting the strategy of first building an extensive and solid sales network that will attract more well-known brands to its stores. It is also counting on the electronic marketing division as younger mainland consumers are avid online shoppers.

Executives revealed the e-commerce business revenue generated from the company's website posted an annual sales growth of close to 28% in 2011.

Who's Who

  • Wang Dongming(王東明)

    Wang Dongming(王東明)

    Wang Dongming is chairman of CITIC Securities International. He is also an executive director and its compliance officer. Wang has been with CITIC ...