Hong Kong cosmetics chain Sa Sa International (00178.HK) has posted disappointing annual results. And its shares have slumped more than 14 percent in past three trading sessions.
However, the culprit is not the decline in mainland visitors to the Hong Kong but its online business.
Sa Sa said its operating revenue stayed flat at HK$7.75 billion in the fiscal year ended March while net profit plunged 15 percent to HK$327 million.
It registered a 4.9 percent revenue growth in the quarter ended March, which has once fanned market expectations for promising annual results, thus the large share pullback in reaction to the profit drop.
In fact, the cosmetics chain has done reasonably well as the retail industry as a whole struggles.
Sales revenue from Hong Kong and Macau steadied at HK$6.27 billion, little affected by the falling number of mainland tourists.
The number of transactions by mainland tourists actually climbed 5.5 percent in the period, outstripping that of local customers.
Online sales rose 9.5 percent to HK$475 million in the fiscal year, becoming the second largest revenue source behind Hong Kong and Macau.
Nevertheless, higher sales have not led to better profit. Quite the reverse, logistics chaos has saddled the unit with considerable losses.
Sa Sa switched to another logistics provider last April, only to find out the new provider was costly and inefficient. It then switched back to the original provider, but the switching caused a lot of trouble. Ballooning online orders worsened the situation, leading to order delays, order cancellations and compensation costs.
Sa Sa chairman Kwok Siu-ming told a press conference that e-commerce business has doubled the loss due to rising logistics costs.
Although online shopping is popular, the company has yet to figure out how to make it profitable.
Frankly speaking, Sa Sa has done pretty well in expanding its online presence. It has opened flagship stores on major platforms like Tmall and JD.com. It has also built its own e-commerce website and WeChat accounts.
During the Labor Day holiday, Sa Sa recorded the highest number of WeChat payment transactions among Hong Kong users of the mobile payment service.
But like many tech experts say, half of the e-commerce game is about promotion, the other half is logistics.
Sa Sa has only done half of the job right. In addition to strengthening its own setup, it would probably need a stronger logistics partner to turn its online business into a viable operation.
This article appeared in the Hong Kong Economic Journal on June 20
Translation by Julie Zhu
[Chinese version 中文版]
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