The Bottom Line
To learn more about the CNBC CFO Council, visit
The Bottom Line

Sa Sa gets makeover as customers go east

Sa Sa earnings hurt by fewer mainland tourists
Sa Sa earnings hurt by fewer mainland tourists

Hong Kong-based skincare and cosmetics retailer Sa Sa International is shaking up its product offering as customers are buying cheaper creams and lipsticks.

The trend toward cheaper Asian beauty products come amid a slowdown in China's growth and an official clampdown on consumption and conspicuous spending.

A customer browses nail polish at Amorepacific Corp.'s Innisfree store.
As South Korea tourism recovers, buy these stocks

It also reflects the growing popularity of South Korean pop-culture abroad and more affordable Japanese beauty offerings due to the weakened yen.

"We have traditionally been more focused on selling very high quality and premium-priced European and American products. But the market has moved much towards low- to mid-priced Asian products," said Sa Sa's Guy Look.

Billy H.C. Kwok | Bloomberg | Getty Images

The company's woes go beyond consumer trends and the ongoing austerity drive in China.

Sa Sa, which reported first half results on Tuesday, saw net profit falling 55 percent to $19.7 million from a year ago due to a decline in mainland Chinese spending power as the U.S. dollar-pegged Hong Kong dollar rose while the fell after the country's central bank devalued the currency this year.

This has contributed to a 97 percent decline in sales turnover at stores in downtown Hong Kong which tend to attract tourists, although local spending is still quite stable, presenting opportunities beyond visitor dollars, added Look.

The retail slump and sky high rents in Hong Kong are squeezing Sa Sa's bottom line, but it has managed to negotiate for lower rents with some landlords, said Look.

Sa Sa's troubles reflect a far wider retail slump in Hong Kong with sales down 6.4 percent in September from a year ago, the seventh straight month of decline. Tourist arrivals fell 4 percent in the same period.

Huarong International Securities associate director Jackson Wong told CNBC's Squawk Box that there will be changes afoot in the Hong Kong retail scene with many shops likely going back to selling basic products instead of luxury goods.