BONJOUR HOLDINGS Ltd (HK: 653), a Hong Kong-based cosmetics and beauty service firm, is saying “bonjour” to more and more PRC tourists and their growing love of shopping in the Special Administrative Region (SAR).
The firm’s first half revenue jumped 30% to one bln hkd, and management told NextInsight that most of this growth is thanks to mainland shoppers, who spend on average four times what local Hong Kong residents shell out.
This is a far cry from the time of Bonjour’s establishment in1991 when the preponderance of footfall traffic, transactions and revenue came from the pockets of the hard-working denizens of Hong Kong, which at that time was still a Crown colony.
But 1997 brought a retrocession of Hong Kong to the PRC, an epochal event that coincided with the beginning of hyper-rapid economic growth on the mainland, a growing PRC middle class, and an end to the sharp divide in living standards on either side of the de facto border separating the former British colony from the Chinese mainland.
Rapidly rising incomes in the PRC, the rise of a consumer goods-hungry population segment and the gradual liberalization of visa issuances gave way to a perfect storm of sorts that allows innovative and highly recognizable brand name retailers like Bonjour Holdings to make more and more money from sales to non-locals without exporting a single tube of lipstick.
Since its founding two decades ago, Bonjour has since expanded to 40 self-owned retail stores in Hong Kong offering over 20,000 beauty and healthcare products, covering a broad range of items divided into five categories: skincare; make-up; fragrances; healthcare; and finally -- hair care, personal care and accessories.
The company says it caters to customers with different budgets and needs, and after interviewing Dr. Wilson Ip, Bonjour's chairman, CEO and executive director, I came away with the sense that more and more of the higher-budget products were increasingly being whisked back across the border to the PRC by mainland shoppers.
NextInsight: Bonjour Holdings had an outstanding first half, with revenue up nearly 30% year-on-year to nearly 1.0 bln hkd, and net profit also rising to a healthy 84.9 mln hkd from 69.4 mln. Was management pleasantly surprised by these strong results or were they within expectations?
Dr. Ip: The performance in the first half of 2010 falls within management’s expectations.
What were some of the main drivers for the strong first half and are the same factors likely to produce a strong second half this year?
Dr. Ip: Besides the contribution from the soaring number of tourists from the PRC, the Group’s encouraging performance and growth rate were also driven by network expansion and the widened spectrum of products.
Of three factors: more PRC tourist/shoppers to your Hong Kong shops, more product offerings, and better cost controls, which was the biggest driver of your bottom line growth in the first half, and will this still be the main driver in the current half?
Dr. Ip: The increasing number of PRC tourists/shoppers is the major driver of our growth. In addition, the expansion of high value-added and high margin products to our portfolio has complemented Bonjour’s development plan and growth in the first half of the year.
According to figures from the Hong Kong Tourism Board, in 2009 the number of visitors from Mainland China has increased 6.5%, taking up 60% of the total number of visitors to Hong Kong (2008: 57.2%)
What percentage of your sales were from PRC tourist/shoppers to your Hong Kong shops, and what percentage were from Hong Kong residents in the first half, and do you see that changing in the second half? Also please comment on the different spending patterns between the two groups.
Dr. Ip: The general pattern of our customers is that local customers take up 65% of our sales and customers from the PRC take up 35%. Since the number of PRC tourists is increasing, we anticipate the trend will refine and move toward 60% for local customers and 40% for customers from PRC.
Average spending of Bonjour’s customers is around 160 hkd for all customers and around 500-600 hkd for PRC tourists.
How big a problem if any is the reported growing crackdown at the Shenzhen-Hong Kong border as well as flights originating from Hong Kong and landing at PRC airports toward passengers bringing into the country in excess of what is allowed per person, and the threat of punitive customs duties being placed on non-compliers?
Dr. Ip: There is a minimal impact on Bonjour taking into account of the frequent and high customer volume from both local, the PRC and overseas.
How is your store expansion campaign going?
Dr. Ip: In the first half of 2010, the Group was able to keep close to the expansion plan and we have launched stores in key Hong Kong shopping districts including Tsimshatsui and Mongkok. As at 1 November, 2010, the Group houses a network of 41 retail outlets in Hong Kong, Macau and one store in Guangzhou, PRC.
Our plan is to open four to five new retail shops every year, mainly in tourist areas such as Tsimshatsui, Mongkok and Causeway Bay.
Despite the growing importance of PRC customers, Bonjour has to date only opened one store in the PRC.
Do you have any plans to open more in the future?
Dr. Ip: Bonjour launched the first China retail shop in Guangzhou in July 2010 which was a significant milestone for the Group. The Group plans to open a total of 10 retail outlets and beauty salons in 2011 with locations yet to be determined. The expansion plan will be subjected to the availability of the shop venues.
Please talk a bit about your three main product categories (cosmetics, beauty products and baby milk powder formula) how their profit margins differ, and how demand for each is now and going forward?
Dr. Ip: Gross profit of the retail segment for the six months ended 30 June 2010 was 34.13%. This is attributable to our well-thought out merchandizing strategy. Our consolidated gross profit margin improved compared with that in the second half of 2009.The profit margins for our product categories are 80-90% for Exclusive Products, and 25-30% for Agent Products. Our Parallel Imported Products have a profit margin of 10%.
Now that the PRC baby milk powder contamination scandal is two years behind us, are you seeing a slowdown or leveling out of your sales of the powder to Mainland China?
Dr. Ip: The Group sees a leveling-out of the sales of milk powder to the PRC. Bonjour has been selling Japanese milk powder for several years. The high turnover of Japanese milk powder clearly marks the popularity of the product among our customers from local as well as Chinese markets.
Since this product category is not a substitute of the high margin products, sales of the low margin Japanese milk powder do no harm to our profitability, but essentially drives the overall profit to a higher level.
Your beauty service centers enjoy very high margins, 90% in some cases... any plans to rapidly expand this segment?
Dr. Ip: We have a comprehensive and targeted business planning to develop our business in each segment. For instance, regarding the beauty salon business segment, the Group is adopting a steady development strategy.
Stepping into 2010, the Group sees the time coming and made the act to increase the brand penetration of “About Beauty” by putting more resources on marketing and image-building that affected the profitability. Efforts in promoting the superior service of our beauty salons and deliver our brand value to our customers had been never-ending.
We expect to continue our expansion strategy of opening approximately 2-3 beauty salons on a yearly basis.
What earnings guidance can you provide at this point, for this half or next year?
Dr. Ip: We are not authorized to provide detailed forecasts but we are very confident that Bonjour’s competitive edge will help us maintain strong growth momentum.
See also:
BONJOUR: Tapping The PRC Consumer… In Hong Kong
