Sa Sa International’s (00178.HK) financial results for its fiscal first-half to September have been quite impressive overall, but the mainland China business remains a cause for concern.
Driven by Chinese tourists, interim profit of the Hong Kong-based cosmetics chain surged 27 percent from a year earlier to HK$ 357.4 million (US$46 million) in the April-September period. But the China division continued to record losses for the eighth consecutive year.
Sa Sa saw its mainland sales dip 3.3 percent during the period, as same-stores sales fell 6.9 percent.
The company acts as an agent for many overseas brands, such as Suisse Programme and South Korea’s Banila. Meanwhile, it has also been building up its own home brand business like Sasatinnie.
In order to secure higher profit margin of over 70 percent, Sa Sa has shifted its focus to develop its own brand products in recent years. Home-grown brands now accounts for about 44 percent of the company’s overall sales.
The strategy has met with success in Hong Kong, but not in China. It is believed the main problem in the mainland lies in the lack of recognition of Sa Sa’s own private labels.
Lack of clear positioning of the firm’s own products could be another problem. Although not as expensive as the premium overseas brands like L’Oreal and Shiseido, the prices of Sa Sa’s own brand products are not competitive when compared with local Chinese skin care brands such as Pehchaolin.
The China weakness didn’t prevent Sa Sa’s share price from jumping nearly 40 percent since the start of this year, as mainland operations account for only about 4 percent of its total sales. But for the company to take its game to the next level, it may have to put more effort on marketing and branding to gain a larger foothold in the China market.
Shanghai Evening Post quoted Ye Yonghui, a managing director of Boston Consulting Group, as saying that domestic firms usually know better about what their local customers need. And the top player could control about 15-25 percent of the market share. As the No. 1 player in China currently has a market share of just around 2 percent, there is a lot room for domestic cosmetic brands to grow, he said.
– Contact the writer at [email protected]