With no end in sight to protests in Hong Kong (albeit at a lower intensity level than this past summer), a range of brands have taken a tough call on exiting the market or shrinking their presence. After marquee labels such as Louis Vuitton, Prada, Tiffany and Co and Burberry, it is the turn of the world's second largest jewellery chain, Chow Tai Fook, and Hong Kong's leading cosmetics retailer, Sa Sa, to shutter 15 stores when leases end by June 2021 and a quarter of outlets, respectively.
These brands have struggled to stay above water in a tough market. Retail sales fell 23.6% in November, on the heels of a record 24.4% in October, with the economy slipping into a recession in the third quarter of the year. In a tough market, luxury purchases are the first to be cut, and jewellery and watches followed this theory, with a steep 43.5% dive in purchases, per government data.
Meanwhile, management consultancy PwC says Hong Kong's government is on course for its first budget deficit since fiscal 2003/04. The firm expects the HKSAR Government to record a HK$38.3 billion (US$4.93 billion) consolidated budget deficit for the fiscal year 2019/20, based on projected fiscal revenue of HK$572.7 billion (US$73.7 billion) and expenditures of HK$617.3 billion (US$79.4 billion).
Previously, brands have leaned on buyers from mainland China and a flood of tourists to boost business in Hong Kong. As the troubles escalated, both numbers declined, pushing brands and retailers to the brink.
The trouble in Hong Kong may have only worsened the operating challenges for these brands, say experts. "The recent disruptions have accelerated the process," says Veronica Wang, partner at OC&C Strategy Consultants. "With the growing mobility of Chinese consumers (a key target market, now fuelled by more liberal visa issual) travellers now have a much broader choice of destinations to shop (from Japan and Korea in Asia to France and Italy in Europe). Hong Kong will gradually lose its position as the shopping paradise."
As Hong Kong's economy has been roiled by protests, the government has rolled out relief measures worth HK$25 billion (US$3.2 billion) to try to reignite growth. However, brands seem unconvinced, with the likes of Forever 21 and Miniso downing their shutters. According to a survey in December by the Hong Kong Retail Management Association, about 97% retailers were in the red since the unrest began in June.