Hong Kong beauty products retailer Sa Sa International is set to close its brick-and-mortar stores in the Chinese mainland, as the burgeoning e-commerce trade rewrites the rules for traditional retailers.

Nine physical stores had called it a day by May and the company plans to shut down the remaining ones by the end of June, according to its filings to the Hong Kong stock exchange.

The share price of Sa Sa International fell 1.82 percent to close at HK$0.54 on Wednesday, extending its losing streak to the fifth straight session since the announcement of its shop closures. The benchmark Hang Seng Index ended on a strong note following a four-day rally, up 1.23 percent, or 297.60 points, to close at 24,474.67 points.

Going online is the name of the game for China’s $111-billion beauty industry. In 2023, online channels captured more than half the market share, for the first time surpassing the share of the offline channels, data from research platform Qeyes show.

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E-commerce now contributes to over 80 percent of Sa Sa’s revenues in the Chinese mainland, forcing the cosmetics retailer to shutter 14 of its stores by March this year. Nearly 60 percent of its total revenues generated online come from the Chinese mainland, which has been swift to embrace e-commerce.

Indeed, Sa Sa is not alone on its journey to online restructuring. Shanghai Jahwa United, one of the country’s biggest and most time-honored homegrown beauty brands, has switched approximately 45 percent of its business online over recent years. Last year, the company appointed a former executive of Chinese e-commerce giant Alibaba as its new chairman and chief executive officer to help it compete in the online arena.

Hangzhou-based competitor Proya Cosmetics’ online sales now make up the lion’s share of its retail sales, up from 93 percent to 95 percent, while for CHICMAX — which owns brands such as Kans, One Leaf and Baby Elephant — over 90 percent of its sales are online.

“Sa Sa’s blunder in its brick-and-mortar business expansion reflects the unsustainability and vulnerability of the traditional retail business model in the digital era,” said Anna Fung Man-wai, strategist at Hong Kong-based Chief Securities.

The cosmetics chain, founded in 1978 and listed in Hong Kong in 1997, had been expanding its presence in the Chinese mainland since 2005, anchoring high hopes on building a business empire with up to 500 stores in the fast growing market. However, amid the intensifying competition, it began to downsize in 2021.  

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In the Hong Kong and Macao markets, where about 80 percent of the company’s total revenues come from, Sa Sa doesn’t fare much better. The company attributed a year-on-year 12-percent drop in sales to the boom in local consumers heading north.

“The problem lies in a structural change in the consumption pattern. The combination of mainland visitors and a brick-and-mortar economy was a recipe for its past success. But it doesn’t work anymore,” Fung said. “Cross-border e-commerce is muscling in on its turf, eroding the retailer’s price advantage.”

Shop closures seem to be a last resort. But the most pressing issue for traditional retailers is how to tell a compelling brand story through the use of smart marketing tactics, and reestablish a competitive edge in the supply chain, Fung said.

As of March, Sa Sa had 84 shops in Hong Kong and Macao, two of which — one in Wan Chai, the other in Kai Tak Mall in Kowloon — were newly opened. Some 26 shops were located in what are considered core tourist areas — far fewer than the pre-pandemic level of 45. The company reported a 65 percent decline in net profit to HK$77 million ($9.8 million) for the year ended in March.

Contact the writer at sophialuo@chinadailyhk.com