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Sa Sa Cosmetics: A Cautionary Tale on the Dangers of Not Adapting in China

After ten years of impressive growth, “Sa Sa," Hong Kong's most notable homegrown cosmetics retail firm, is in the throes of the business equivalent of a midlife crisis, occasioned by dismal sales and rapidly declining profitability. The Sa Sa case study is a cautionary tale underscoring the dangers in over-reliance on a single market, and the consequences of failing to address emerging opportunities in mainland China’s digital economy.

Established in 1978, Sa Sa is a leading cosmetics retailing group in Asia. It has over 250 retail stores in Asia, covering Hong Kong and Macau SARs, China, Mainland China, Singapore, and Malaysia. It sells over 700 brands of skincare, fragrance, make-up and hair care, body care products, health and beauty supplements including own-brands and exclusive products.

On November 21, Sa Sa International Holdings Limited ("Sa Sa International") released its interim results report (six months ended on September 30, 2019). The report shows Sa Sa's turnover was HK $ 3.494 billion (about $446.4 million). This turnover represents a decrease of 15.7%, down from turnover of HK $ 4.147 billion (about $529.8 million) in the previous year. Sa Sa lost HK $ 36.5 million (about $4.6623 million dollars) during the first six months of fiscal year 2019, a massive downturn compared to a profit of HK $ 203 million (about $25.9352 million) recorded during the same period in 2018. The total turnover of Sa Sa's Mainland China business increased slightly by 0.2% to HK $ 132 million (about $16.8643 million), while same-store sales increased by 9.4%. As the same-store sales growth improved, the store level contribution increased by 39.8% year-on-year. As a result, the total loss of the Mainland China segment narrowed by 18.8% to HK $ 12.9 million (about $1.6481 million). [1]

The data shows this cosmetic retail giant is suffering because of a rapid sales decline in usually dependable markets, especially in Hong Kong. Sales in mainland China have been poor but in comparison to other markets, offer some cause for optimism. Therefore, Sa Sa now regards the mainland market as their lifeline and has decided to accelerate its expansion into mainland China, particularly Southern China.

Is it the right decision? Maybe it’s too late.

First, Sa Sa has been losing money in mainland China for a long time. Here is a graph to show its loss from 2009 to 2018.

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