Prospect for HK’s Luxury Sales Looms

Prospect for HK’s Luxury Sales Looms

Street view in Hong Kong(Credit to: Lin Jing)

(Image Credit: Lin Jing, China Current International)

Ms. Duan, a harbour night cruise promoter, has been peddling the tour to passers-by on Canton Road for a long time. In her eyes, the road is always packed with ambitious mainland visitors and these luxury boutiques lining up along the road are as bustling as usual.

But reality may not be so optimistic.

As of July, the city has witnessed drops in retail sales for six consecutive months while the value of total retail sales finally rebounded by 3.4% in August 2014. And the total retail sales for the first half of 2014 also decreased by 1.3% over the same period last year.

According to the same statistics from Hong Kong Census and Statistics Department, the value of sales of jewellery, timepieces and valuable gifts suffered a nearly 30 percent year-on-year decline in June 2014.

Base Effect

A government spokesman noted the fall in recent months partly resulted from the extremely high base of the first half year in 2013.

At the time, the slump in gold prices purred huge consumption impulse, stimulating a pervasive “gold rush” from mainland Chinese, who played a role in Hong Kong’s retail market performance.

Rebound and fluctuation of gold price in the following months, however, has dispelled the unprecedented fever.

The unaudited operational data of Chow Tai Fook, a leading listed jewerllery dealer, for the first quarter that ended on June 30 showed a 32 percent group sales fall, with a grimmer 43 percent decrease in Hong Kong, Macau and other Asian markets.

The company repeatedly highlighted the influence of “the extremely high base effect” in its report published on July 9. Its managing director Kent Wong Siu-kei said in a teleconference that the influence will be eased over the second half year but the annual sales performance is still unpredictable.

Analysis report from ICBC International believed the significant decline was in accordance with expectation.

“We expect high base pressure to be relieved in following quarters,” said the report on July 14 and JP Morgan’s report on July 11 remained its “overweight” advice despite the jewerllery dealer’s “weaker-than-expected sales”.


Street view in Hong Kong(Credit to: Lin Jing)Spending Pattern

More inexplicitly, the changing visitor spending pattern was pointed out by Hong Kong government spokesman when explaining the flagging retail sales in Hong Kong.

Ms. Wang, a tourist from Beijing, has been in Hong Kong for several times but she said Hong Kong’s advantage is fading.

“The service attitude is not as friendly as before,” Wang said. “Some salesmen would urge me if I cannot make up my mind as quickly as they expect and they would show their impatience and disappointment directly.”

Wang, who has to spend three hour flying here, has already landed in overseas destination-the United States-for shopping.

“Hong Kong is so densely populated while the U.S. is much more spacious. And the prices of many high-end fashion items in the U.S. are more attractive,” she added.

Wang’s hesitation before footing the bill in Hong Kong was not isolated. Before coming to Hong Kong, Ms. Leng from Chengdu made a shopping list on which she had recorded all the items she planned to buy to avoid blind spending.

“Frankly, I have already checked the prices of many items in the U.S. by asking my friends and have set an acceptable price range for all of them” Leng said. “If the prices here are much higher than in the U.S., I will definitely turn to my friends for favor.”

“With a larger proportion of mainland visitors from second- or third-tier cities, extravagant tourists who may spend over HK$100,000 buying a name brand watch with ease is vanishing,” said Caroline Mak Sui-king, the chairwoman of the Retail Management Association at a joint briefing.

Currently, Hong Kong government is considering axing 20 percent of visitors across the border given Hong Kong’s limited capability to receive tourists, which is estimated to be over 70 million in 2017, according to a governmental assessment report published in January.

The retail sector was worried the restriction would further aggravate economic losses to over HK$40 million.

“If the retail sales or volume go down, the first hit would be the income of 35,000 employees in the sector,” Mak warned. “And then the ripple effect actually will go out to supply chain, advertising, wholesale, other tourism-related ones.”

On the contrary, in the wake of sluggish economy, many European countries and the U.S. have lifted previous restrictions toward mainland tourists and put forward a series of shopping discounts, which is steering a number of mainland tourists with high purchasing capability from Hong Kong to these countries.

Moreover, anti-mainland sentiment sprawled in Hong Kong has also played a part.

In June, some mainland Chinese boycotted visiting Hong Kong in response to a clash between a mainland family and Hong Kong locals over toddler’s pee on a street at Mongkok in April.

As a result, the growth rate of mainland visitor arrivals dropped from a 20 percent year-on-year gain in the first quarter to 8 percent in June, according to the Hong Kong Tourism Board.

The cool-down of mainland visitors also coincided with President Xi Jinping’s widening crackdown on corruption, which is taking effect to curb the consumption of luxuries by appropriating public money.

Even if the rebound of retail sales in August, starting from the end of September, the intense Occupy Central movement or the so-called “Umbrella Revolution” repelled many mainland tourists objectively due to the pass restriction imposed by mainland government or subjectively for fear of being the target of some radical Hongkongers. And many shops, including some luxury boutiques, located in the four main occupied areas—Admiralty, Central, Causeway Bay and Mong kok—had to choose to close their business temporarily in face of dim shopper arrivals – not only due to actual safety concerns, but also because some visitors worried that the antagonism against mainland government and CCP demonstrated by OC movement was transferred to them.


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