China tumult buffets City Chain group

Watch retailer City Chain Group has seen its turnover plummet 18.5 per cent last financial year, leading to a pre-tax loss of HK$31 million on sales of $1.804 billion.

While the retailer has around 350 stores in Hong Kong, Macau, Mainland China, Singapore, Thailand and Malaysia, together with online stores in the mainland, it was heavily exposed to the broad Hong Kong collapse of the luxury watch and jewellery markets in 2015-16.

But the subsidiary of listed Hong Kong retail group Stelux remains buoyant regarding its future prospects, highlighting its reduction of inventory by 32.2 per cent and prudent stock replenishment strategy.

The damage to the bottom line was predictably predominantly in Hong Kong and Macau, where sales fell 20.3 per cent to HK$1.17 billion. “This was due to the decline in Mainland Chinese tourist traffic and associated spending fall, together with the general economic slowdown in Hong Kong and Macau,” Stelux remarked in its annual results filing.

“With the decrease in turnover and narrowed gross profit margin triggered by promotions to boost consumer purchase, dis-economies of scale hit bottom line and EBIT decreased to $43.9 million (2015: $244.3 million). This was despite operating costs (other than shop rentals) dropping by 12.2 per cent.”

In Mainland China, where City Chain faced “a very challenging operating environment following volatile stock markets and the depreciation of the yuan in mid 2015 and a further slowdown of the Chinese economy in the second half”, turnover fell 5.6 per cent, or 3.3 per cent on a foreign exchange neutral basis, to $218 million. The store network was trimmed back, leading to a widening of the pre-tax loss from $55.1 million last year to $74.7 million this year.

Rising online sales are expected to grow further this current year.

“The fast growing mainland online market is an important focal point and key to our O2O strategy. To capture this growth, we continue to invest in our e-business by enriching the product mix and appeal of our house brands through increased marketing,” said Stelux.

“Mainland China continues to be the focus for the long term development of City Chain both online and offline.

City Chain chart

South East Asia

With reduced number of shops in Thailand and Singapore and the introduction of GST in Malaysia, turnover dropped by 19.1 per cent to $415.9 million and a minor loss of $200,000 was recorded.

“Following an unsatisfactory performance in the first half, we saw a profit contribution in the second half. The losses in Singapore and Thailand were contained in 2015/16 with disciplined management of operating costs and closure of non-performing shops,” Stelux reported.

“Malaysia remains a profitable market despite the adverse external conditions.”

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