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Sasa International Holdings Limited（Sasa International）， a well-established cosmetics wholesaler and retailer from Hong Kong， has already been developing in the Chinese market for nine years， but it is still fighting against the depressed performance.
Recently， Sasa International published the unaudited report about its performance in the first financial quarter ending June 30. It showed that Sasa International closed up to seven outlets in the first financial quarter， six of which were located in mainland China.
Sasa International has already seen several similar figures. Its 2013 financial year’s report stated that the company closed 21 outlets and opened 15 new outlets in mainland China in the past financial year.
In that financial year， the situation in mainland China seemed to get better compared with a year before. However， it still ended that financial year with the loss of 37 million HK dollars. This performance put Sasa International into a predicament with eight straight years’loss after getting into the Chinese market.
Sasa International opened its first China-based outlet in Shanghai in 2005.“The initial area of this store is about 400 square meters， twice as much as that of outlets in Hong Kong. We usually go to Hong Kong for business purpose and often buy cosmetics from Sasa International’s outlets. Therefore， it is really a joyful surprise to have the outlet of Sasa International to open in Shanghai，” says Wu Fan， a loyal fan to Sasa International. At that time， she held the same opinion towards Sasa International’s outlook in China with the senior executives of Sasa International –the company was going to have a good outlook in this land.
But the truth is usually very different from the expectation. No one might have expected that the first year of Sasa International in China ended with the loss of 17 million HK dollars.
The situation got worse instead of being better in the following years. The amount of loss increased from 17 million HK dollars to 21 million， then to 26 million and finally to 37 million. Sasa International’s business in mainland China kept refreshing the records of loss.
“In Hong Kong， we can find Sasa’s outlets almost everywhere， but in mainland China， it is hard to see an outlet of Sasa International after visiting several cities，” says Wu Fan. “It has too few outlets in the Chinese market.”
In the past nine years， Sasa International opened fewer than 60 outlets in China， meaning that it could only open about seven outlets annually. The rivals of Sasa International， however， are developing very fast in China. Watsons， another retailer from Hong Kong， realized the fast expansion in the world. From 2011 to 2013， Watsons opened over 1000 new outlets， or opened one new store every day， around the world. It had opened 4000 outlets by the end of February 2014. In mainland China， Watsons has 1700 outlets in total and the number is going to increase to 3000 in 2016.
“In the market of mainland China， Hong Kong-based retailers Sasa International and Bonjour all failed to get used to this market. In comparison， Watsons and Mannings are doing very well. This means that the underperformance of Sasa International is not a problem in the industry， but a result of their own faults，” says Lin Yue， chief analyst with Lynear Management Consultancy. The Chinese market owns a large space， but Sasa International was apparently restrained by its internal problems.
The Internal Problems
“Truth to be told， the Sasa International’s outlets in mainland China are still far behind their peers in Hong Kong，” says Wu Fan. It is better to say that Sasa International did not copy any pattern rather than that it failed to copy the Hong Kong pattern into mainland China.
In Hong Kong， the two core competitive advantages of Sasa International are the price and brands. Simply put， it follows the pattern of “selling big brands with low prices”. In the outlets of Sasa International in Hong Kong， the prices of top cosmetics brands， such as Lancome， Estee Lauder and Dior， are 30%-50% lower than in ordinary shops.
That’s why Sasa International was rated as the favorite brand in Hong Kong for tourists from mainland China. Most of Chinese tourists in Hong Kong bought things from Sasa International’s outlets there.
“Sometimes we could see some tourists from mainland China shop with lists in their hands. Obviously， they made a lot of preparations for this，” Wu Fan says. She recalls a saying that a deal is done every two seconds in Sasa International’s outlets in Hong Kong at the peak time.
However， the outlets of Sasa International in mainland China are deprived of the advantages in prices and brands. Therefore， it cannot attract many consumers or have a large number of deals. An employee for an outlet of Sasa International in mainland China says that she has never heard of the massive con-sumer flow like in Hong Kong in any of Sasa International’s outlets in China.
“There are at least 1500 kinds of products in the outlets of Hong Kong， while the number of products in the outlets of mainland China is only one tenth of that. The price in mainland China is usually 15%-20% higher than in Hong Kong，” says Chen Feng （alias） who used to work as an agency for an international cosmetics brand in China. With the additions of consumer tax， tariffs， VAT and other kinds of tax or fees， it is impossible for Sasa International to sell the products with low prices in mainland China even if they have the intention to do this. Ironically， even though Sasa International could not sell the products in China with the prices 30%-50% lower than in ordinary shops， it is still considered to be the seller of low-price brands by the international cosmetics brands. They worry that Sasa International might disrupt the original price system and sales channels of their products in mainland China and eat away the profits of their counters in shopping malls or other sites if they allow the Hong Kong company to sell their products in this market.
Without the dealership of the top brands in the world， Sasa International chose the self-owned brands， the second- and third-tier brands from Hong Kong or foreign beauty salons. But these brands are more like the “miscellaneous” brands for consumers in China. They do not accept them and this refusal impacted the brand reputation of Sasa International.
“Once I heard from one of my friends who have never been to Sasa International’s outlets call Sasa an unknown small outlet，” Wu Fan says. In the Chinese market， Sasa International has no advantages in both the number of outlets， the product categories and the brand reputation. “Thus the loss and closure of outlets are no accidents.”
“Sasa International is a typical example of foreign companies’ failure to get used to the Chinese market. When it initially got into the Chinese market， it has not foreseen the challenges of the market and the difference in policies and environment there. It is not feasible to completely copy the Hong Kong pattern in the business operation. That means Sasa International did not prepare enough for the Chinese market in the strategies，” Lin Yue says. Sasa International needs to think over and remedy many things in the future.
The Adjustment
However， unlike other foreign retailers， Sasa International did not completely give up the Chinese market，
Simon Kwok Siu Ming， president of Sasa International， once said that Sasa International planned to expand with 20-30 outlets opened annually in mainland China and was expected to own 300-500 outlets there.
However， the expansion pattern needs to be changed.
Sasa International already expressed its will to change last year. In June of that year， Sasa International said that some of the newly-opened outlets in mainland China would adopt the operating pattern of conceptual boutique which needs lower cost but has higher efficiency. The said conceptual boutique covers half of the average area of ordinary outlets and the number of products is going to be reduced greatly. It will focus on the selling of popular products and self-owned brands. Simon Kwok Siu Ming also said that the company was going to conduct big changes to its business in mainland China. It will have strict control of the commodity supply， human resource and size of outlets through regional management and is going to be committed to the tryout and promotion of boutiques. “I firmly believe that these measures will see positive effect. These are the changes Sasa International is forced to make，” says Chen Feng. In his opinion， embracing the boutiques might have negative impact over Sasa International’s development in the aspects of rent and HR cost， but it definitely sends out a new piece of information： Sasa International is going to stay in the market of mainland China despite the current harsh situation.
Chen points out that Sasa International highly relies on the consumers from mainland China so much that it will not close all the outlets in mainland China and leave just like this. “Even in Hong Kong， Sasa International’s development can be said to be based on the consumers from mainland China. The large number of consumers coming to Hong Kong， however， is only the tip of the iceberg compared with the huge population in mainland China. The healthcare and beauty product market in mainland is expected to be a huge pie with the value of over one trillion yuan.
Admittedly， it is not easy to have a bite on this pie.
“The problem that Sasa International needs to solve mostly is to get rid of its unique Hong Kong features and establish its own pattern matching the Chinese market. In addition， the popularity of the high-end hygiene products will provide new opportunities for many cosmetics manufacturers and retailers like Sasa International. The retailers need to pay more attention to the consumer experiences and the increase of reputation among consumers. This puts forward higher requirements about marketing for the retail enterprises. For example， they need to get the dealership of the products favored by consumers and builds up new shopping experiences through emerging marketing methods like WeChat and Microblog. In addition， it needs to interact with consumers. In this aspect they can do a lot of work，” says Lin Yue.
It is noteworthy that Sasa Inter- national suffered the same problem of reduced number of consumers in Hong Kong.
According to its latest data， the revenue of Sasa International increased by 5.3% to 1.6085 billion HK dollars in the first financial quarter. The growth rate was much poorer than the 28.1% growth in the same quarter of last year. Meanwhile， Sasa International’s samestore sales increased by 1.9% only， a great underperformance compared with the 18.6% growth in the last financial year.
Sasa International attributed the underperformance in the first financial quarter to the apparently reduced consumer power of tourists from mainland China. According to the statistical data， the number of tourists coming to Hong Kong increased much slower in this year. In addition， they are less willing to go shopping in Hong Kong.
“The Chinese consumers massively turn to the U.S. and European markets. Buying things from the overseas websites is also a choice for them. No matter in Hong Kong or mainland China， Sasa International needs to bring about the new surprise，” says Wu Fan.
Recently， Sasa International published the unaudited report about its performance in the first financial quarter ending June 30. It showed that Sasa International closed up to seven outlets in the first financial quarter， six of which were located in mainland China.
Sasa International has already seen several similar figures. Its 2013 financial year’s report stated that the company closed 21 outlets and opened 15 new outlets in mainland China in the past financial year.
In that financial year， the situation in mainland China seemed to get better compared with a year before. However， it still ended that financial year with the loss of 37 million HK dollars. This performance put Sasa International into a predicament with eight straight years’loss after getting into the Chinese market.
Sasa International opened its first China-based outlet in Shanghai in 2005.“The initial area of this store is about 400 square meters， twice as much as that of outlets in Hong Kong. We usually go to Hong Kong for business purpose and often buy cosmetics from Sasa International’s outlets. Therefore， it is really a joyful surprise to have the outlet of Sasa International to open in Shanghai，” says Wu Fan， a loyal fan to Sasa International. At that time， she held the same opinion towards Sasa International’s outlook in China with the senior executives of Sasa International –the company was going to have a good outlook in this land.
But the truth is usually very different from the expectation. No one might have expected that the first year of Sasa International in China ended with the loss of 17 million HK dollars.
The situation got worse instead of being better in the following years. The amount of loss increased from 17 million HK dollars to 21 million， then to 26 million and finally to 37 million. Sasa International’s business in mainland China kept refreshing the records of loss.
“In Hong Kong， we can find Sasa’s outlets almost everywhere， but in mainland China， it is hard to see an outlet of Sasa International after visiting several cities，” says Wu Fan. “It has too few outlets in the Chinese market.”
In the past nine years， Sasa International opened fewer than 60 outlets in China， meaning that it could only open about seven outlets annually. The rivals of Sasa International， however， are developing very fast in China. Watsons， another retailer from Hong Kong， realized the fast expansion in the world. From 2011 to 2013， Watsons opened over 1000 new outlets， or opened one new store every day， around the world. It had opened 4000 outlets by the end of February 2014. In mainland China， Watsons has 1700 outlets in total and the number is going to increase to 3000 in 2016.
“In the market of mainland China， Hong Kong-based retailers Sasa International and Bonjour all failed to get used to this market. In comparison， Watsons and Mannings are doing very well. This means that the underperformance of Sasa International is not a problem in the industry， but a result of their own faults，” says Lin Yue， chief analyst with Lynear Management Consultancy. The Chinese market owns a large space， but Sasa International was apparently restrained by its internal problems.
The Internal Problems
“Truth to be told， the Sasa International’s outlets in mainland China are still far behind their peers in Hong Kong，” says Wu Fan. It is better to say that Sasa International did not copy any pattern rather than that it failed to copy the Hong Kong pattern into mainland China.
In Hong Kong， the two core competitive advantages of Sasa International are the price and brands. Simply put， it follows the pattern of “selling big brands with low prices”. In the outlets of Sasa International in Hong Kong， the prices of top cosmetics brands， such as Lancome， Estee Lauder and Dior， are 30%-50% lower than in ordinary shops.
That’s why Sasa International was rated as the favorite brand in Hong Kong for tourists from mainland China. Most of Chinese tourists in Hong Kong bought things from Sasa International’s outlets there.
“Sometimes we could see some tourists from mainland China shop with lists in their hands. Obviously， they made a lot of preparations for this，” Wu Fan says. She recalls a saying that a deal is done every two seconds in Sasa International’s outlets in Hong Kong at the peak time.
However， the outlets of Sasa International in mainland China are deprived of the advantages in prices and brands. Therefore， it cannot attract many consumers or have a large number of deals. An employee for an outlet of Sasa International in mainland China says that she has never heard of the massive con-sumer flow like in Hong Kong in any of Sasa International’s outlets in China.
“There are at least 1500 kinds of products in the outlets of Hong Kong， while the number of products in the outlets of mainland China is only one tenth of that. The price in mainland China is usually 15%-20% higher than in Hong Kong，” says Chen Feng （alias） who used to work as an agency for an international cosmetics brand in China. With the additions of consumer tax， tariffs， VAT and other kinds of tax or fees， it is impossible for Sasa International to sell the products with low prices in mainland China even if they have the intention to do this. Ironically， even though Sasa International could not sell the products in China with the prices 30%-50% lower than in ordinary shops， it is still considered to be the seller of low-price brands by the international cosmetics brands. They worry that Sasa International might disrupt the original price system and sales channels of their products in mainland China and eat away the profits of their counters in shopping malls or other sites if they allow the Hong Kong company to sell their products in this market.
Without the dealership of the top brands in the world， Sasa International chose the self-owned brands， the second- and third-tier brands from Hong Kong or foreign beauty salons. But these brands are more like the “miscellaneous” brands for consumers in China. They do not accept them and this refusal impacted the brand reputation of Sasa International.
“Once I heard from one of my friends who have never been to Sasa International’s outlets call Sasa an unknown small outlet，” Wu Fan says. In the Chinese market， Sasa International has no advantages in both the number of outlets， the product categories and the brand reputation. “Thus the loss and closure of outlets are no accidents.”
“Sasa International is a typical example of foreign companies’ failure to get used to the Chinese market. When it initially got into the Chinese market， it has not foreseen the challenges of the market and the difference in policies and environment there. It is not feasible to completely copy the Hong Kong pattern in the business operation. That means Sasa International did not prepare enough for the Chinese market in the strategies，” Lin Yue says. Sasa International needs to think over and remedy many things in the future.
The Adjustment
However， unlike other foreign retailers， Sasa International did not completely give up the Chinese market，
Simon Kwok Siu Ming， president of Sasa International， once said that Sasa International planned to expand with 20-30 outlets opened annually in mainland China and was expected to own 300-500 outlets there.
However， the expansion pattern needs to be changed.
Sasa International already expressed its will to change last year. In June of that year， Sasa International said that some of the newly-opened outlets in mainland China would adopt the operating pattern of conceptual boutique which needs lower cost but has higher efficiency. The said conceptual boutique covers half of the average area of ordinary outlets and the number of products is going to be reduced greatly. It will focus on the selling of popular products and self-owned brands. Simon Kwok Siu Ming also said that the company was going to conduct big changes to its business in mainland China. It will have strict control of the commodity supply， human resource and size of outlets through regional management and is going to be committed to the tryout and promotion of boutiques. “I firmly believe that these measures will see positive effect. These are the changes Sasa International is forced to make，” says Chen Feng. In his opinion， embracing the boutiques might have negative impact over Sasa International’s development in the aspects of rent and HR cost， but it definitely sends out a new piece of information： Sasa International is going to stay in the market of mainland China despite the current harsh situation.
Chen points out that Sasa International highly relies on the consumers from mainland China so much that it will not close all the outlets in mainland China and leave just like this. “Even in Hong Kong， Sasa International’s development can be said to be based on the consumers from mainland China. The large number of consumers coming to Hong Kong， however， is only the tip of the iceberg compared with the huge population in mainland China. The healthcare and beauty product market in mainland is expected to be a huge pie with the value of over one trillion yuan.
Admittedly， it is not easy to have a bite on this pie.
“The problem that Sasa International needs to solve mostly is to get rid of its unique Hong Kong features and establish its own pattern matching the Chinese market. In addition， the popularity of the high-end hygiene products will provide new opportunities for many cosmetics manufacturers and retailers like Sasa International. The retailers need to pay more attention to the consumer experiences and the increase of reputation among consumers. This puts forward higher requirements about marketing for the retail enterprises. For example， they need to get the dealership of the products favored by consumers and builds up new shopping experiences through emerging marketing methods like WeChat and Microblog. In addition， it needs to interact with consumers. In this aspect they can do a lot of work，” says Lin Yue.
It is noteworthy that Sasa Inter- national suffered the same problem of reduced number of consumers in Hong Kong.
According to its latest data， the revenue of Sasa International increased by 5.3% to 1.6085 billion HK dollars in the first financial quarter. The growth rate was much poorer than the 28.1% growth in the same quarter of last year. Meanwhile， Sasa International’s samestore sales increased by 1.9% only， a great underperformance compared with the 18.6% growth in the last financial year.
Sasa International attributed the underperformance in the first financial quarter to the apparently reduced consumer power of tourists from mainland China. According to the statistical data， the number of tourists coming to Hong Kong increased much slower in this year. In addition， they are less willing to go shopping in Hong Kong.
“The Chinese consumers massively turn to the U.S. and European markets. Buying things from the overseas websites is also a choice for them. No matter in Hong Kong or mainland China， Sasa International needs to bring about the new surprise，” says Wu Fan.