Sogo ‘resilient’ in tough market

Department store operator Lifestyle International says its Sogo department stores in Causeway Bay and Tsim Sha Tsui helped it achieve a 15.1 per cent boost in first half year profit.

In the six months to June 30, group turnover increased 6.6 per cent to HK$3.07 billion and profit attributable to owners of the company to $1.17 billion “The Sogo Causeway Bay store proved resilient,” the company said in its half year report.

“It put in a steady and solid performance during the review period and delivered a healthy set of business results. The store generated HK$4.493 billion in total sales revenue, representing a slight decrease of 1.4 per cent from the same period last year, largely in line with the market as a whole. As with previous years, the store remained the biggest contributor to the group’s revenue, accounting for 64.4 per cent.”

That trading result was achieved despite a renovation program and during a period of “relatively weak market sentiment”, which caused a decline in traffic footfall.

“Notwithstanding the drop in traffic footfall, the store saw an increase in the stay-and-buy ratio that went up by 2.3 percentage points from the same period last year, which reflected customer loyalty for the store.”

Across the harbour, the Sogo Tsim Sha Tsui store, which moved to a new location in November, has quickly attracted a significant amount of old and new customers, thus enabling it to grow steadily and deliver a better-than-expected performance, the company said.

“The stay-and-buy ratio, average ticket size and the traffic footfall all performed well above the expectation of the management. During the period, continuous efforts had been made to adjust and refine the brand portfolio and merchandise of the boutique-style store, in reference to customers’ reception and the group’s market research. To enrich the product selection, SOGO TST opened in May the Freshmart in the previously unfilled area of the store, which houses a wine cellar and offers a vast array of food and confectionery items.”

In Mainland China, Lifestyle’s operations delivered “encouraging results” in spite of the prevailing weak sentiment in the retail market.

“The performance of operations in bigger cities was relatively more positive, as the decline in consumer confidence showed signs of bottoming out. The larger middle-class population with stronger spending power also enhanced the resilience of operations in big cities. Nonetheless, intensifying market competition remained a challenge. On balance, the generally healthy results of the mainland operations attest the Group’s core competency and its ability to drive operational efficiencies in good or bad times.”

Shanghai Jiuguang performed strongly throughout the review period, with sales revenue up 9.7 per cent from the same period last year. The group said it had made an extensive effort to adjust the store’s brand and merchandise portfolio over the past years, which was now starting to pay off, and the store is now believed to own the strongest portfolio of cosmetic brands in its locality.

“While Shanghai Jiuguang’s total traffic footfall fell 10 per cent during the period, the average ticket size was up 5.7 per cent and the stay-and-buy ratio improved by 6.2 percentage points, which again points to strong customer loyalty. In May, the store kicked off its renovation program, which is to be carried out in phases and is scheduled for completion in 2016.

“Suzhou Jiuguang, which has established itself as a sought-after shopping destination in Suzhou, stayed firmly on a growth trajectory. It turned profitable in 2013 and has remained so since then. For the first half of the year, it reported a 5.1 per cent growth in sales revenue. The traffic footfall and ticket size was up 10.5 per cent and 1.7 per cent respectively, while the stay-and-buy ratio was largely stable at 38 per cent,” Lifestyle reported.

“Of late, competition in the local department store sector has grown increasingly fierce. Being one of the first department stores to have secured a solid market position in the city, Suzhou Jiuguang enjoys first-mover advantage and has developed a loyal clientele that is still growing. Nevertheless, the group will continue to monitor closely the market situation in order to devise sound and sensible marketing and business strategies to respond promptly to new development in the market.”

However, Dalian Jiuguang in Northeast China performed “largely in line with the local market situation”, recording a 13.2 per cent negative growth in sales revenue.

“The results were within expectation of the management, in light of the fragile business environment and weak consumer sentiment of the city over the past few years. However, the group has been realigning the product range and tenant mix to widen the appeal of the store.”

Shenyang Jiuguang, which opened in October 2013 as the Group’s fourth Jiuguang establishment in mainland China, continued to face a sluggish retail environment, with weak consumer sentiment and restrained economic activity.

“With persistent efforts to enhance its product mix and to promote a wide range of local and imported products catering to a broad customer base, Shenyang Jiuguang managed to keep its business on a stable footing. For the first half of the year, sales revenue was stable when compared with the corresponding period in 2014. The traffic footfall showed signs of improvement, indicating the group’s marketing strategy is in the right direction. The management is aware that under the current economic climate, it would take notably more time for a young department store like Shenyang Jiuguang to turn profitable.”

And Beiren Group, an established Shijiazhuang-based retailer in which the Group has strategic investment, continued to deliver “stable performance despite slack demand” in the highly competitive local market. For the first six months of the year, the investment contributed about HK$179.7 million in profit (including profit attributable to non-controlling interest) to Lifestyle International, compared with HK$142.7 million in the same period last year. The significant improvement in share of results was mainly due to the fact that its results in the previous year were negatively impacted by an audit adjustment.

Beiren Group operates approximately 1.2 million sqm of retail space encompassing 17 department stores, 37 supermarkets and various outlets specialising in electrical appliances, consumer electronics and gold and jewellery. Most of the operations are located in Shijiazhuang.

Nearly two years since its opening in July 2013, the group’s standalone “Freshmart” store in Changning, Shanghai, continued to deliver consistently and satisfactory results. Sales revenue for the first six months of the year saw a year-on-year growth of 11.6 per cent.


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