Core Viewpoint - Watsons, once a cash cow for Li Ka-shing's business empire, is facing significant challenges in the Chinese market, with profits from health and beauty products declining for six consecutive years since 2019, and a projected 18% drop in sales for 2024, alongside a 55% decrease in EBITDA [1][11][19] Group 1: Financial Performance - Watsons' revenue from health and beauty products in China for 2024 is projected to be 135.08 billion HKD, down from 164.53 billion HKD in the previous year, marking an 18% decline [11][12] - EBITDA for the same segment is expected to fall to 4.67 billion HKD from 10.42 billion HKD, reflecting a 55% decrease, with EBITDA margin dropping from 6% to 3% [11][12] - The number of stores in China has decreased to 3,875 from a peak of 4,179, indicating a contraction in physical retail presence [13] Group 2: Quality Issues and Brand Reputation - Recent controversies surrounding product quality, including complaints about a Watsons-branded disposable underwear allegedly containing mold, have severely impacted brand reputation [4][6] - Watsons has faced multiple lawsuits related to product liability, with its own brand products frequently criticized for quality issues on consumer complaint platforms [5][7] - The company has been penalized by market supervision authorities for issues such as unauthorized cosmetic formulations and false advertising [7] Group 3: Market Challenges - The rise of e-commerce and new beauty retail formats has intensified competition, making Watsons' traditional offline retail model less effective [1][13] - The company has struggled to adapt to digital channels, despite efforts to establish online platforms, as consumer perceptions remain tied to its physical stores [14] - New entrants in the beauty retail space are further diverting customers away from Watsons, particularly in lower-tier cities where its performance is relatively better [13] Group 4: Historical Context and Ownership Changes - Watsons was acquired by Cheung Kong Holdings in 1981, becoming a significant part of Li Ka-shing's business empire, which at its peak generated over 160 billion HKD annually [17][18] - The company was once poised for an IPO in 2013, but a significant stake sale to Temasek Holdings in 2014 led to the shelving of those plans, reflecting cautious sentiment about its future [19]