The Analysis of Hong Kong SASA’s Supply Chain
and Logistics System
ZHANG Chaoying, WEI Xiao
Beijing Institute of Petrochemical Technology, P.R.China, 102600
zhangchaoying@bipt.edu.cn
Abstract:Hong Kong SASA International Holdings Limited is the largest and leading cosmetics
retailing and beauty care service group in Asia. Its sale prices are much lower than those of exclusive
stores and counters because it adopts the strategy of bulk purchase throught the world and marketing
many brands comprehensively. This thesis, through field research, systematic analysis and hierarchy
analysis,will analyze SASA’s secrets of success and challeges confronted today according to its supply
chain and logistics system. Two conclusions have been drawn from the thesis: firstly, the supply chain
and logistic management mode must comply with the local laws; secondly, the success of a company
comes from its good supply chain and logistics system, but it can not be copied at will.
Keywords:Hong Kong, SASA, Supply Chain, Logistics System
1 Introduction
Research on Supply Chains and Logistic Management first originated from USA. So far, the research
development has gone through the following three typical phrases: earlist “Transportation”, then
“Logistics”, and latest “Supply Chain Management (SCM .
Since 1990’s, the two concepts, Logistic Management and Supply Chain Managemen,Coexist. At the
same time, there are mainly four argument: (1) Traditionalist,who belives that SCM is just the organic
ingredient of Logistic Management; (2) Relabeling, who argues that the two are the same thing with
different names; (3)Unionist, who believes the category of SCM is wider than that of Logistic
Management, which is opposite to the Traditionalists’ view; (4) Intersection ist, who thinks the two are
different displines but overlap. The four totally different arguments indicate that the the two concepts
have not come to a consensus, with respect to the knowledge system, theroy system, and fuandation of
the displines.
In this paper, Supply chain is defined as the logisitic network, composed of suppliers, manufacturers,
warehouses, distribution centres, chanel sectors, etc.. Supply chain management (SCM is the integrated
management philosophy and methods, which execute the plan and control of logistics from suppliers to
end users. Based on the above-mentioned definition, the paper hold the point that Logistics is a
significant component of Supply Chain.
At present, most of the research on SCM and Logistic management are about entreprises’ basic business
processes, the design of Supply Chain, the operating model of Supply Chain, collaborating partner
relationship, and so on. The paper took the supply chain and logistic management system of Hong Kong
SASA for intance, intended to discuss the influenc of different legal framework on enterprises’ supply
chain and logistic management mode, then to reveal the fact that compliance with local laws underlies
the sucessful supply chain and logistic operating mode.
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2 Background of Hong Kong SASA
Guo Shaoming and his wife, Luo Guizhen, founded “SASA”in an underground wharehouse rented with
20,000 HK dollars in 1978. At the beginning, their store was just a cosmetics retailing counter of no
more than 5m2. With the idea of more sales for less profit, they stocked cosmetics and skin-care products
of different brands from agents and sold them at discount.
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At that time, the cosmetics market in Hong Kong was much like the one in mainland today, ordinary
cosmetics went at high price for high profit. Cosmetics could only be found at counters in department
stores which charged admittance fare and commission from the sale. To save expenses, most of SASA’s
counters were located in the stores on the steets with many people, and in this way, SASA spared the
admittance fare and commission deducted by department stores, with a lot of customers patronaging. If
it sold all articles of different brands at the same counter, SASA would save a considerable sum of
decoration cost by using their unified counter image. Trained strictly, shop assistants mastered enough
knowledge of beauty culture to deal with goods of many brands so that labour cost saved greatly.
“Giving up the farthest benefits to customers”, SASA’s marketing strategy, is helpful of forming its
steable consumer group. With its expansion, SASA began to stock directly from manufacturers all over
the world and has become the exclusive agent of many brands. Presently, SASA owns 7 main markets in
Asia, including Hong Kong, China Mainland, Singapore, Malaysia, Taiwan, Tailand and Macao, having
about 2,600 employees.
3 Hong Kong Cosmetics Market
Hong Kong has being adopting free-trade policy all along without any trade barrier. Before 1997, the
Hong Kong ex-government imposed tax on liquors, tobacco, carbinol, hydrocarbon oil, soft beverage
and cosmetics manufectured both locally and abroad, say, levying ad valorem tas of 25% of CIF on
imported cosmetics and 25% of trade price on the ones manufactured locally. Afer the returning of Hong
Kong in 1997, the government began to loosen the limit of tax policy and now leves taxs only on
alcohol, carbinol, hydrocarbon oil and tobacco, with soft beverage and cosmetics exempted. Therefore,
the cosmetics market in Hong Kong became flourishing, increasing by 3.8% yearly from 1998 to 2006
according to the Forbes release. Otherwise, Hong kong accepts the sanitary quarantine criterion of
Europe for cosmetics, so those with Europe quarantine certificate are not to be re-inspected, fercilitating
the importing and marketing of cosmetics.
Currently, the cosmetics stores in Hong Kong fall into four categories:
3.1 Cosmetics department stores
large-scale department stores mark off a floor for cosmetics sale and each famous brand has its own
counter. For instance, shopping malls, such as FACES, BEAUTé SOGO, JOYCE, Pacific Place, Times
Square, International Finance Center, etc., have their special counters for cosmetics with all assortments
of world-famous brands including Chanel, Lancome, Clinique, and Shiseido.
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3.2 Exclusive stores of brand cosmetics
Such stores sell cosmetics of certain particular brand, but not any others.
3.3 Pharmacies
It was in the pharmacy where cosmetics were sold at the very beginning in Hong Kong and now the
tradition still remains. But the way of sale has changed, with a special room marked off for cosmetics
selling in pharmacies such as Watsons, Wanning, and Longcheng.
3.4 At-a-sale cosmetics stores
This kind of stores include SASA, Bonjour, Angel and Rainbow, etc..
At present, the greatest challenge to SASA comes from its competitor, Bonjour. Bonjour was founded in
1991, listing on The Stock Exchange of Hong Kong Limited in July, 2003. In Hong Kong it has 28
branch stores selling over 30,000 kinds of products which neighbour on those of SASA, threatening to
share the market with SASA equally. Most of the products sold by Zhuoyue are second-class ones and
their super low prices attract lots of customers from mainland of China
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4 SASA’s Low Price Strategy
SASA always offers surprising low prices because it can do a good price bargin with bulk purchases all
over the world. Except the brands dealt with as an agent, SASA’s other supplies of goods come from the
agents throughout the world at discount prices, not from famous-brand manufacturers directly, so its
prices are much lower than those of the exclusive counters of goods in Hong Kong and Macao.
To pursue the goal of low prices, SASA adopts the strategy of inviting supply tenders at the lowest price
through worldwide price competition, so it is not surprising to find the same line of articles with
different packings in its stores.
Actually, manufacturers would design different parkages for different target markets and print labels and
specifications, etc. respectively according to the laws of the host country.
For instance, SK-II is made in Japan, but sells all over the world, which bears different language labels
bearing or enclosed specifications. Therefore, the same articles, SK-II, are packed in defferent form of
packages, those directly from the manufacturer bearing only batch code without date, those from Hong
Kong agent with the words refering to date,, those from Taiwan with manufacture date such as “0710”
(indicating the date , Oct., 20070 .
Otherwise, some suppliers don’t want others to know that they sell goods to SASA, so cover the English
letter printed before the batch code on purpose. For an example, some of the Clinique products sold by
SASA imported from the US, some from UK and both are packed in the same way originally except the
first English letter indicating different marketing places. In order to disguise, the suppliers would attach
a another label to the package so that the first English letter is covered and make the packing look
different.
5 SASA’s Products Supply Chain System
Figure1 SASA supply chain of commodity
As is shown in Figure 1, SASA commodity supply chain is a supply system based on markers. The
cosmetics manufactures sell their products all over the world through agents. SASA stocks from agents
in different places in the world by the means of price competion and collctes the stocks in its ditribution
center in Hong Kong. SASA’s suppliers are mainly agents of manufactuerers of Hong Kong, America
France, England, Japan and Germany as well as other manufacturers whose agent is SASA. Through the
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development of 30 years, SASA has estabilshed good relationship with those agents mentioned above
and possesses over 100 chain stores with regular consumers so that any agent in Hong Kong or
elsewhere in the world would not ignore SASA. Moreover, each time manufacturers want to market its
new product through agent, SASA is one of their first choices. All those conditions above help SASA
get goods at even lower price and ensure to keep the supply chain the smooth and continous.
6 SASA’s Logistics and Distribution Channels
At present, SASA has 51 chain stores in Hong Kong, 14 in New territories, 23 in Kowloon, 14 in Hong
Kong Island. SASA transfers its commodity from oversea to Hong Kong by the means of the sea
transportation but locally it celects a special company which delivers the goods the to differnet
destinations. Quick and exact distribution channel is another highlight of SASA.
Figure 2 SASA distribution channels
As can be seen in figure 2, SASA adopts a three-level distribution system. The goods are distributed
from the master station (first-level distribution center) to the second-level distribution center, then from
the second level to the third level, and last from the third level to the retail stores. The distribution
centers of each level do the distributing timely according to the sales of the sub-levels, of which the key
link to ensure the timely distributing is the sales information delivering system.
It is a special limitless information delivering system that does the delivery in SASA Hong Kong.
Figure 3 Sales Information Delivering System in SASA Hong Kong.
As shown in Figure 3, the code of each article will be scanned by shop assistants when it is being sold so
that not only can the cost be counted out but also the sales information will be sent to third-level
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distribution centers, including the store number, name of the article, volume, model, etc. Then the
third-level distribution centers will distribute and deliver the products timely based on the sales
information from each store in their administrating areas, ensuring the supply of goods in each store.
The third-level distribution centers will also scan the code of each article when they distribute. The cost
and models of the goods delivered to each store will be recorded and meanwhile the delivery
information will be sent to the second-level distributing centers. The second-level distributing centers
will do the distribution and delivery timely in the same way and will purchase goods from the master
station according to their own specific condition.
7 Business Failure in Mainland China
After 25-year development in Hong Kong, SASA began to prepare for entering the Mainland market. In
March, 2004, its first business was inaugurated on Huaihai Road in Shanghai. However, the stores in
Mainland are not so prosperous as in Hong Kong. At present, SASA Hong Kong owns more than 400
brands while there are only less than half of those numbers in Mainland, whose import prices are 15% to
20% higher. The main reason may be attributed to the breaking of the supply chain.
Firstly, the European test standard of cosmetics is not recognized by Chinese government. All the
cosmetics imported must be re-quarantined, which will take nearly one year in addition to a quarantine
fee of RMB¥ 20, 000 each model. So SASA will have to wait for a long time to sell the cosmetics by
itself, which may easily lose the commercial opportunities.
Secondly, according to the government regulations, the Ministry of Public Health will issue quarantine
numbers and labels of Chinese Characters to the cosmetics quarantined, each of which is unique and
belongs to the applicants. It means that SASA cannot apply for re-quarantine on the major cosmetics
that have been imported into Mainland even if it gets the dealership.
Thirdly, most of the major brands in the world have been introduced into China and most agencies of
these brands in Mainland are their own branches, who are not willing to see comparatively much
differences in prices between the SASA stores and special counters in department stores. Therefore, they
would unlikely to sell the brands to SASA at the lower price.
Fourthly, SASA’s entering the Mainland market woke up the companies in Mainland, such as the
Xieheng Mobile Chain stores, famous for selling mobiles at reasonable price. After SASA announced
that its entrance into the Mainland market, Xieheng found that there were hardly no large-scaled
cosmetics chain retail companies in Mainland. As a result, Shanhai Yiting Cosmetics Chain Ltd. was set
up and 16 branches were opened in Shanghai before SASA’s entrance. Meanwhile, SEPHORA, attached
to the world-famous luxury brand LVMH, opened a store within 100 meters form SASA, and soon
developed into three chain stores.
The breaking of the supply chain and the increasing of competitors caused much trouble for the
development of SASA Shanghai branch. According to the 2004 report by Citigroup Smith Barney, the
first store of SASA International in Mainland China suffered a loss of HK$10 million in the first year.
The annual report of SASA Shanghai branch also indicated that SASA suffered a loss of more than
HK$10 million in Mainland market in the fiscal year from 2006 to 2007. Due to different conditions of
law and market, SASA Hong Kong’s supply chain mode cannot be duplicated in Mainland market. Even
Shanhai Yiting CosmeticsLtd., who wanted to copy the mode of SASA at the beginnging of its business,
has not approached its expected result and be marching hardly nowadays.
8 Conclusion
The supply chain and logistic management mode of enterprises must comply with local laws. The
management and trade policies of cosmetics vary considerably between Hong Kong and China
Mainland. The successful operation of SASA in Hong Kong could not guarantee the its prosperity in the
Mainland.
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Healthy supply chain and Logistic system, which underlies the success of enterprises, could not be
copies easily. Hong Kong SASA copies its Hong Kong mode in the Mainland, but the result is
frustrating. Shang Hai Yiting, which copies the SASA mode from its beginning, also learned a bitter
lesson. All the facts indicate that successful supply chain and logistic management mode cannot be
copied blindly without flexibility.
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