In the first quarter of 2021, SSI Group, a leading luxury retailer in the Philippines, witnessed a significant drop in profits. The company reported a decrease of 58.5 per cent in net income to US$2.4 million (PHP$152.9 million), even though revenue increased by 11.4 per cent to $123.8 million. This decline in earnings is attributed to consumers prioritizing essentials over luxury goods.
Financial Performance and Consumer Behavior
A more promotional business environment impacted SSI’s profitability, shrinking the merchandise gross margin from 44.6 per cent the previous year to 42.6 per cent. The main reason for this change is the growing price sensitivity among consumers due to inflation and escalating living costs. Operating expenses also increased by 15.8 per cent to $48.3 million, due to inflationary pressures and store network expansion, which led to a decrease in EBITDA by 18.4 per cent to $12.3 million.
During this same period, consumer demand was primarily focused on the essential and lifestyle categories with a 48.5 per cent sales increase in SSI’s ‘others’ segment, which includes personal care, food, and home products. Footwear, accessories, and luggage also experienced a 32.7 per cent increase in sales. However, the group’s core luxury and bridge segment witnessed a 1.7 per cent drop in sales, indicating decreased spending on premium discretionary items.
Online Sales and Store Operations
E-commerce sales reached $9.1 million, making up 7.4 per cent of total revenue, while rental income from its Central Square property saw an 8.1 per cent increase to $387,270.
SSI Group also made adjustments to its physical stores. The company closed 14 underperforming stores permanently, opened five new locations, and renovated 12 stores during the quarter. At the end of the quarter, SSI Group operated 631 stores nationwide.
SSI Group’s portfolio includes a broad range of brands, from luxury labels like Hermès, Cartier, and Salvatore Ferragamo to fashion and lifestyle brands such as Zara, Bershka, Stradivarius, Pull&Bear, Gap, Old Navy, Lacoste, and Muji. The retailer also offers beauty brands like Mac, Lush, and Beauty Bar; home retailers like Pottery Barn and West Elm; and dining concepts like Shake Shack, SaladStop!, and Venchi.
In February, the retailer announced the termination of its franchise agreement with Marks & Spencer, which had been in operation since 1980.
Questions & Answers
What contributed to the decline in SSI Group’s profits for the first quarter of 2021?
Consumers shifting their priorities from luxury goods to essentials, coupled with inflation and increased living costs, resulted in the decline of SSI Group’s profits.
How has SSI responded to this change in consumer behavior?
In response to changing consumer behavior, the group has focused on promoting essential and lifestyle categories more. It has also optimized its physical store network by closing underperforming stores and opening new ones.
What is the future of SSI’s relationship with Marks & Spencer?
SSI Group has decided to end its franchise agreement with Marks & Spencer, which had been operational since 1980. The future of this relationship is not clear at this point.
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