Europe takes the strain for A.S. Watson as China sales slow due to COVID-19 woes

CK Hutchinson is a Hong Kong-based conglomerate that operates in port development and operations, retail, infrastructure, energy, and telecommunications.

The company’s retail division, A.S. Watson, operates in 28 markets and comprises retail brands such as Watsons, ParknShop and Superdrug.

During its 2021 annual results earning conference, the firm announced that its retail division’s EBITDA increased by 11% to HK$16bn (U$2bn).

The growth was driven by the health and beauty sector, which grew by 17% year on year.

The health and beauty operations in Western Europe led the recovery of the division amidst the different pandemic waves in 2021 and delivered strong EBITDA growth of 36% to HK$1.98bn (U$253m).

On the other hand, the retail business in Eastern Europe grew by 19% to HK$357m (U$45.7m)

The growth was attributed to the growth in countries such as Germany and Poland, where its stores were classified as essential and allowed to remain open during lockdowns.

Conversely, footfall declined to below pre-pandemic levels in China, where it was plagued by COVID-19 lockdowns in the second half of 2021. As a result, EBITA declined by 11% to HK$291m ($37.2m)

“China delivered a very encouraging performance in the first half of last year when the pandemic conditions were relatively stable. However, in the second half of 2021, the business was significantly affected by regional outbreaks and potent national movement restrictions, which negatively affected our customer footfall,” ​ said Dominic Lai, deputy managing director of CK Hutchinson and group managing director of A.S. Watson Group.

In Asia, the firm was similarly impacted by various restrictions over the year but was aided by improved performances in Malaysia and the Philippines.

Furthermore, 2021 saw the recovery of its business in Hong Kong. “We were badly hit in the year 2020 but in 2021, the losses have been reduced significantly,” ​said Lai.

Overall, its Asia business managed to improve its EBITDA by 6% to HK$138m (U$17.6m)

Furthermore, the company grew its number of stores in 2021 by 1% to 16,398 stores globally.

“Our retail division remains the world’s largest international health and beauty retailer operating in 28 markets under 12 retail banners,” ​said Lai.

Safeguarding with O+O model

With the recent disruptions brought about by COVID-19, the company believes it is imperative to lean on its offline plus online (O+O) strategy.

Lai highlighted that the O+O strategy was crucial in “safeguarding” the company in China, especially in the fourth quarter (Q4) of last year.

“In Q4 of last year, it was the most serious quarter that we have seen [in China], statistically. The growth rate projected by the Chinese government fell short Q4 was particularly badly hit. ​On the other hand, we have been doing a lot of actions in China to safeguard as much as possible.”​

This included recruiting new members and converting them into O+O shoppers.

“Customers shopping with us online and offline actually spent 2.8 times more than the customers that shop with us only in physical stores. So that's the best strategy”

This year, the company’s O+O sales accounted for half of the total sales in China and grew over 55% year on year.