‘S’ for ‘Slump’: What makes the most sluggish fiscal year of Sa Sa?

Sa Sa, the Hong Kong-based beauty retailing giant, reported a huge loss for the last fiscal year on Jun. 19. It was the first time that Sa Sa has published a fiscal deficit after SARS. Up until Mar. 31, Sa Sa recorded a loss of HK$515.9 million (US$66.6 million). However, at this time, the general circumstances of the beauty retailing market in Hong Kong is even worse than the nightmare 17 years ago.

View of a Sa Sa store in Causeway Bay, Hong Kong, which was closed in February because of the coronavirus outbreak. (Source: SCMP)

Sa Sa is a leading beauty product retailing group in Asia, operating more than 230 retail stores in Hong Kong, Macau SARs, Mainland China, and Malaysia; in its base camp Hong Kong, Sa Sa owns nearly 100 physical stores. Over 20 of these stores temporarily shut down this year not just because of the coronavirus pandemic— the turbulent social circumstance in Hong Kong and the more intensive competitions in the digital commerce area have made 2020 the most sluggish fiscal year in the last two decades.

From 2002 to 2003, the SARS pandemic swept across from Mainland China to other East Asian countries, and Hong Kong was an epicenter. In order to control community transmission, plenty of retail stores were asked to terminate. For Sa Sa, it then led to a HK$71.1 million (US$9.2 million) loss in the 2002-2003 fiscal year. Fortunately, in the following decade, due to Sa Sa’s proactive expansion strategy in both physical stores and digital outlets —even during the great depression in 2008— it never encountered a record loss in its annual fiscal reports.

Everything changed in 2020. But the slump had begun even before the pandemic.

On Jul. 1, the controversial new Hong Kong Security Law started to take effect, which sheds a different light on the cold wave in Hong Kong’s retailing market. What it’s directly aimed at is the anti-extradition law protests since June 2019. Ever since then, plenty of local retails, including multiple Sa Sa stores, were temporarily suspended. More importantly, the travel industry received considerable damage from the turmoil, and the number of travelers who bring the major purchasing power, especially from Mainland China, decreased. Accordingly, the group’s retail and wholesale turnover decreased by 69.5% compared to the same period last year.

The controversial Security Law may continue to shake Hong Kong’s retailing market. Since the Hong Kong issue is now an international hot spot and brings political tensions between Mainland China, the U.K., and the U.S., Sa Sa’s major arena will no longer be regarded as a free trade port. With its market attractiveness lowered, cooperation between Sa Sa and its international partners such as Elizabeth Arden is likely to fluctuate. Therefore, Sa Sa’s most unique business strategy, the abundant exhibited brands from fair prices to exclusives, will then lose its advantage.

Compared to the dilemma Sa Sa confronted in 2003, which was mainly brought by the SARS pandemic, the knotty situation this time is much more complicated. Apart from the instability of social conditions, the increasing competition in the digital commerce area also drives Sa Sa into a cramped corner.

As one of the bellwethers of e-commerce, JD.com launches physical campaigns to promote its online shopping festival. (Source: Twitter)

After the coronavirus outbreak first started in Wuhan, Hong Kong also reported its first case on Jan. 23. Soon after that, Hong Kong took multiple public precautions in order to stop the pandemic from spreading further. Both international and local transportation were largely suspended; public areas, including retailer stores, closed for months. Moreover, the public health departments encouraged residents to lower the frequency of people going out, causing the sales of physical stores to slope downward. Consumers have since relied more on online shopping.

Nonetheless, compared to other e-commerce platforms such as Tmall, Sa Sa no longer has the leading market shares and the dominant position as what it had in the offline retailing market. According to the latest yearly report, although Sa Sa accelerated its expansion in e-commerce, digital sales still had a 22.7% decrease in the first quarter of 2020. In comparison, Tmall gained a massive growth from doubling sales in cosmetics merely during its mid-year shopping festival in June. Ample options of brands and friendly prices used to be the trump cards of Sa Sa’s success in the offline retailing arena, yet in the world of online shopping, Tmall and JD.com have more than these, including various financial products to stimulate purchasing. Thus, it is not surprising that Sa Sa has lagged behind the leading Chinese e-commerce giants.

In addition to the significant e-commerce rivals Tmall and JD.com, there are other players such as Sephora with a similar operation mode combining offline and online retailers entering the arena. Compared to Sephora, a jigsaw belonging to the luxury retail conglomerate LVMH group, Sa Sa also stays in a less advanced place in this competition. “There is [a] value attached to that, whereas Sa Sa is on a lower kind of value proposition,” says Associate Professor Lawrence Loh, from the National University of Singapore Business School, adding that Sa Sa’s general branding strategies have failed to attach to the higher-line cosmetics and more loyal consumers. Hence, from an overall point of view, Sa Sa’s significant slump in 2020 is out of expectation but somehow predictable.

Thumbnail Credits: Retail News Asia