‘Significant drops’: ASW China health and beauty sales decline hampers overall retail performance

By Amanda Lim

- Last updated on GMT

China’s health and beauty sales decline hampered the overall retail growth of ASW. [Watsons]
China’s health and beauty sales decline hampered the overall retail growth of ASW. [Watsons]

Related tags China A.S. Watson retail COVID-19

China’s health and beauty sales decline hampered the overall retail growth of A.S. Watson Group (ASW), but the firm insists EBITDA of other regions have ‘fully compensated’ for China’s decline.

In 2022, the firm’s health and beauty retail business revenues declined by 2% to HKD142.5bn (USD18.2bn) as China’s market faced headwinds which impacted health and beauty the most, with EBITDA dropping by 58%.

At its peak in November last year, ASW had temporarily shuttered over 1,000 of its health and beauty stores in China, it said during their annual earnings conference on March 16.

Despite an 18.3% decline in comparable store sales, it was able to partly recover the shortfall in store traffic by recovering sales through its digital channels. Online sales participation increased to 40% in 2022 from 27% in 2021.

Excluding China, total retail revenues increased by 1%. The firm’s overall retail division recorded EBITDA of HKD14.3bn (USD1.82bn), a decrease of 11% and 1% with the exclusion of health and beauty China.

While China suffered, the rest of the health and beauty division recorded growth. Western and eastern Europe saw EBITDA increase of 5% and 8% respectively.

However, Asia was the biggest winner, recording 33% EBITDA increase. The countries that contributed to this increase in Asia were Malaysia, Thailand, the Philippines, and Turkey.

“The increase in EBITDA are a result of increased sales, increased traffic after the opening of these countries and also through the trading mix, we have some better products with higher EBITDA margin so that that also contribute to the increase in EBITDA,” ​said Dominic Lai, group managing director.

He added: “The significant EBITDA drop in health and beauty China has been fully compensated by EBITDA growth in other regions.”

Future outlook 2023

With the relaxation of COVID-19 restrictions in China, the health and beauty division in Asia is expected to see growth in 2023.

The firm has already observed recovery in China at the start of 2023, said Lai. “It was a bad year, a tough year for China in 2022 but they had a robust start entering into 2023.”

“The better news is that following the easing of the lockdown restrictions at the end of last year, the China operation started to recover strongly. Trading performance in January, February and up to now is quite encouraging.

ASW operated 12 retail brands in 28 markets worldwide as of the end of 2022. The health and beauty retail business is its largest division, accounting for over 95% of EBITDA.

In 2022, the firm operated a total of 16,142 stores after opening 668 stores and closing 924 stores. Store closures were mainly in China, Ukraine and Russia.

Moving forward, ASW expects to open more stores in 2023, as retail earnings growth will come from new store openings in high growth markets with good payback periods, said the firm.

“For new store openings average payback period remains healthy at 13 months – a very good payback and it has been maintained at this level for a good number of years,” ​said Lai.

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