Hong Kong retailers have already felt the effects of China’s slowing luxury spending, and along with the pro-democracy protests, 2014 was a tough year for Hong Kong luxury stores. Now, the category that had once withstood slowing sales, cosmetics, is feeling the pinch as well.
Two Hong Kong cosmetics chains, Bonjour and Sa Sa, have both downgraded their expectations for the near future.
Due to the falling spending power of its biggest client base, mainland Chinese tourists, Bonjour posted a profit warning in which the company expects net profit to decline 10 to 20 percent year-on-year compared to last year, reports South China Morning Post.
Bonjour’s biggest rival, and the largest beauty chain in Hong Kong, Sa Sa announced sales of HK$2.5 billion with flat turnover in the third quarter ending December 31st. Sales in Hong Kong and Macau were down by 1 percent and same store sales growth was down 3 percent for the third quarter ending December 31st. Sa Sa saw year-on-year sales growth 9 percent in the first quarter and 7 percent in the second.
“Although the number of transactions attributable to mainland Chinese customers grew by approximately 20 per cent, this growth was narrowed by the deepened decrease in average sales per transaction,” said Sa Sa chief executive Simon Kwok. He added, “Mainland Chinese tourists demand less high-priced products, resulting in a decrease in the average sales per transaction attributable to them.”
According to Nielsen, mainland Chinese tourists spent 12 percent less in Hong Kong than the previous year, spending HK$22,000 on average. Of those surveyed, 96 percent said they would return to Hong Kong to shop, but that they would spend 10 to 20 percent less.
Though watches and jewelry had seen sales drop by double digit percentages over the last year, cosmetics had remained a bright spot until December of last year, which is usually peak season. Both Sa Sa and Bonjour attribute the decline to the rise of Korean cosmetics brands, which are cheaper than Japanese and European brands and have been bolstered by the popularity of Korean pop culture in China.
With expectations that Chinese tourist spending in South Korea will top $29 billion by 2020, the falling cosmetics sales could be a big momentum swing in South Korea taking over Hong Kong’s status as the luxury shopping destination for Chinese travelers.
According to data from Korea Tourism Organization and Hana Daetoo Securities, the number of Chinese tourists visiting South Korea is expected to rise 19.8 percent per year, reaching 14.9 million by 2020. With Chinese tourists already making up one-third of all visitors to South Korea, and the strengthening yuan, Chinese tourists accounted for 49 percent of the total money spent by tourists in Korea. By 2020, Chinese spending on cosmetics in Korea is expected to double to 5.2 trillion won.
image source: sasa.com