Hong Kong retail engine stays in lower gear

Luxury retailers and jewelers the hardest hit by drop in retail sales.

The past year has a been a tough one for Hong Kong’s economy and its retail market in particular. Protests against the influx of mainlanders, combined with the China government’s crackdown on corruption, has greatly reduced revenue gained from these tourists. In March 2016, Hong Kong’s richest tycoon, Li Ka-Shing said that the current downturn in property and retail sales is “worse” than it was during the SARS epidemic in 2003, reported the SCMP.

In November last year, the Hong Kong government reported that the city-state’s retail sales had dropped for the 12th month running. According to the SCMP, Thomson Cheng Wai-hung, the chairman of the Retail Management Association predicted full-year figure for 2015 to have fallen at least 3 percent.

While most sectors were impacted, luxury retailers, including jewellery and fine watches, were the hardest hit with sales down 20.6 percent.

Home-grown jewellery brand Chow Tai Fook in particular has suffered as sales, buoyed in the past by gold-seeking Chinese mainlanders, plunged 23 percent year-on-year in Hong Kong and Macau in the first quarter of 2016. Its brand too suffered dropping from the 95th spot in 2015 to 131st place this year. Competitor brand Chow Sang Sang fell too from 103rd place in 2015 to 152nd place this year.

This combined with non-negotiable sky-high rents has luxury retailers threatening to close outlets in Hong Kong. Tod’s, Tag Hauer, Gucci and Burberry have all threatened to close outlets if rents don’t drop.

Due to the drop in sales, ad spend in Hong Kong only grew 3 percent to US$6 billion in 2015 versus 4 percent growth, reports the Hong Kong Trade Development Corporation based on figures by Admango. The report added that ad spend on jewellery, watches and luxury products dropped 14 percent year on year.

Surprisingly, despite a tough sales year, perception of foreign luxury labels on the whole have improved on the Top 1000 rankings. Chanel has hopped up four places from 19th in 2015 to 15th this year, Louis Vuitton has risen from 97th to 88th, Prada from 127th to 104th and Christian Dior from 60th to 36th.

This increase in local brand perception could be due to the drop in controversies involving the brands and sales-tourists from mainland China.