Hong Kong retail showed no sign of improvement in the second quarter, with the earnings of beauty companies L’Occitane and Sa Sa International on Tuesday revealing persistent weakness from slowing tourist flows to the city.
Leading mass cosmetics retailer Sa Sa International reported sales in its core markets of Hong Kong and Macau for the quarter ended June declined by 8.8 percent to 1.46 billion Hong Kong dollars, or $188.6 million at current exchange, while same-store sales decreased by 6.8 percent. Group turnover was similar, decreasing 8.6 percent to 1.82 billion Hong Kong dollars, or $235 million.
The company blamed the strength of the Hong Kong dollar, which is pegged to the U.S. dollar, for impacting the appeal of Hong Kong for Mainland Chinese tourists.
“The Hong Kong retail market has been in decline from March 2015 to date based on data announced by the Hong Kong government, and official figures are showing no signs of improvement,” the firm said.
Mainland Chinese arrivals to Hong Kong for the first five months of the year are up just 5 percent compared to the 16 percent year-on-year growth seen last year.
“The market environment is still deteriorating into the second quarter, potentially putting more pressure on the group’s earnings,” Sa Sa chief executive officer Simon Kwok said. He added the company was working on its omnichannel and cross border capabilities while focusing on enhancing the in-store shopping experience.
Meanwhile, the French but Hong Kong-listed L’Occitane also reported soft results in Hong Kong. The city’s sales, which make up 10 percent of its turnover, fell 5.6 percent to 28.5 million euros, or $31.1 million. That compared to overall groupwide turnover that increased to 274.6 million euros, or $300 million, up 17.5 percent.
However, Mainland China fared much better and was the beauty brand’s fastest-growing market, surging 26 percent to 25.4 million euros, or $27.7 million.
“Hong Kong retail operation was affected by the sluggish retail sentiment,” L’Occitane said. “Hong Kong travel retail business also suffered from the drop in inbound tourists in Korea.”
South Korea was hit by an outbreak of the MERS virus starting in May, resulting in 186 infections and 36 deaths, although the threat seems to be waning. No new cases have been reported since July 4.