Tag: Causeway Bay

The days of double-digit sales growth seem like a mirage now.

Not long ago retailers were blasé about such numbers when mainland visitor arrivals were at their peak. Now, of the 10-odd shops in a prime stretch of Yee Wo Street in the Causeway Bay shopping district, three premises lie vacant. Prime outlets are also a lot less affordable because of Hong Kong’s rising dollar.

High-spending tourists are disappearing in droves. Retail bosses and hoteliers are feeling the effects of weak demand and fear the challenging business environment will weigh on them even more in the months ahead.

Many say that the tourism and retail sectors are affected inevitably by external factors. But few in either industry can predict when the downturn will end. As they wait for the next boom, an increasing number of companies are trying to identify their weaknesses and problems and shift their business focus to adapt to the changing environment.

Chow Tai Fook Jewellery, the world’s largest jewellery retailer, says in its annual results announcement that relatively weak consumer sentiment in Hong Kong and Macau is reflected in decreasing customer traffic.

In the financial year ending March 31, customer traffic at its outlets in tourist areas shrank by around one-third year on year.

It says mainland tourists may be opting for other destinations, and the possible change in inbound tourism from mainlanders “may pose structural changes to the retail industry in Hong Kong and Macau and arouse uncertainty” over its business.

To adjust to the changes, the retailer will focus on enhancing the operational efficiency of its outlets and consolidate them.

Cosmetics chain SaSa says the average spending per head mainland tourist customers dropped about 11 per cent in the past fiscal year owing to the weaker purchasing power of tourists from lower-tier cities.

Another reason was the increasing demand for cheaper products, such as Korean goods, which dilutes sales growth even though it may drive store traffic, the company says.

It rues the appreciation of the US dollar and the ensuing difference in the relative strength of the yuan and Hong Kong dollar, saying it is encouraging more mainland tourists to travel to markets with weaker currencies, such as Europe and South Korea.

“The ongoing anti-corruption campaign on the mainland is impacting demand for high-priced items and gift sets,” SaSa adds.

But the group has identified some new opportunities, such as cross-border e-commerce facilitated by the development of free trade zones on the mainland.

Oriental Watch, a leading retailer in the city, notes the impact of rising social tensions and conflicts between Hong Kong and mainland China, saying these social events have further dragged down Hong Kong’s sluggish luxury sector.

The company says it has opted for stringent cost-control measures to prepare itself for the challenges that lie ahead.

“By closing down non-performing retail stores on their lease expiry, resources could be better allocated in fine-tuning our existing retail network,” says Oriental Watch.

It points out that the pace of rent increases in Hong Kong has slowed down in the past few months, given the fragile economic outlook.

“This positive sign suggests a perfect juncture for the group to negotiate for a reasonable rental rate,” it adds. It says rental costs for the year ending March 31 accounted for 39 per cent of the group’s operating expenses.

Many retailers have long blamed high rents for pushing up the cost of doing business in Hong Kong.

CBRE, a real estate services company, points out in a research report that Hong Kong was still the world’s most expensive retail market in terms of rent in the first quarter of the year. The average annual rent reached US$4,334 per sq ft. But rents are softening.

Daniel Wong Hon-shing, chief executive at commercial property agency Midland IC&I, says shop rents are under pressure as sales of consumer goods continue to decline.

He says rents at prime locations in major shopping districts such as Causeway Bay and Tsim Sha Tsui have fallen as much as 25 per cent year on year.

“Cosmetics chains and jewellers have started consolidating business and stopped expansion,” Wong says. “The vacancy rates are rising.”

He says even international brands are less willing to pay a high premium for shops in key retail areas, given the sluggish growth in the number of high-spending mainland visitors coming to the city.

Neither are Hongkongers in a mood to go shopping.

Caroline Mak Sui-king, chairwoman of the Retail Management Association, says an increasing number of high-earning Hongkongers are more likely to holiday in cheaper neighbouring destinations, such as Japan and South Korea.

“It’s good value to travel to such places and have fun as the Hong Kong dollar remains strong,” she explains. “Hong Kong’s reputation as a shopping paradise has been put to the test.”

CLSA, a brokerage and investment group, says in a research report that shopping is a key reason for mainlanders to visit Hong Kong.

It believes the mainland’s decision to cut import tariffs will also hit Hong Kong’s retail sector, because the price gap between the two markets is narrowing.

Its study found that 70 per cent of experienced mainland travellers surveyed said they would prefer to buy domestically if prices were lowered by 25 per cent.

The firm says import tariffs and consumption taxes on the mainland add up to as much as 40 per cent for cosmetics and 25 per cent for apparel, adding that a reduction of taxes in such times would narrow the price gap between the mainland and Hong Kong markets and discount the city’s price advantage.

The total value of Hong Kong’s retail sales in May, provisionally estimated at HK$39 billion, was down 0.1 per cent compared with the same month last year. It was the third monthly decline in a row, despite a smaller drop than the revised decrease of 2.1 per cent in April.

The jewellery, watches and valuable gifts category continued to record a double-digit fall, with sales value declining 14.9 per cent to HK$6.7 billion.

Mariana Kou, senior investment analyst at CLSA, says the retail sector in Hong Kong is facing “a structural decline”. She says the city lacks new tourist attractions and anti-mainland sentiment is hurting tourist spending.

“Even luxury brands are struggling,” she says. She expects some retailers to cut costs by closing shops and laying off staff in the coming months.

Meanwhile, the Hong Kong Tourism Board, in reply to queries from the Post, says it “continues to focus its resources on 20 key markets” in promoting the city as a tourist destination.

A spokesman says the board “is investing most of its marketing budget in the international markets, especially short-haul ones. One hundred per cent of our marketing budget in international markets is used to draw overnight arrivals”.

It has joined hands with hotels, airlines and other trade partners to roll out tourism products and accommodation offers.

For the rest of the year, the board plans to stage a number of mega events to highlight Hong Kong’s tourism strengths. They include the “Hong Kong Wine & Dine Festival” in late October and “Hong Kong WinterFest” in December.

“Through staging a series of mega events, the [board] hopes to uphold Hong Kong’s image as the events capital of Asia, enrich the visitor experience, and provide a business platform for the travel and related trade,” the spokesman says.

The numbers will tell soon enough if the strategies work. If not, a rough ride lies ahead for Hong Kong’s much vaunted tourism and retail scene.