Hong Kong businesses, which used to focus their advertising predominantly on mainland tourists, are now setting their sights on Hong Kongers themselves in an effort to make up for sluggish sales as cross-border visits are drying up.
Luxury jewelers such as Chow Tai Fook Jewellery Group Ltd. and Luk Fook Holdings International Hong Kong Ltd. are tapping into the spending power of the city’s seven million residents through promotional offers and special events. Although their stores are seemingly ubiquitous and their advertisements are plastered all over Hong Kong’s busses, they have not always considered the city’s residents their top priority, analysts say.
“Previously, jewelers took local consumers for granted,” said Emily Huang, consumer analyst at Barclays. “Although locals grew up with the brand, they wouldn’t buy in bulk like Chinese tourists do.”
The former British colony has long been the favored destination for mainland Chinese consumers looking to purchase everything from Swiss watches to medicinal oils. Industry experts say that in recent years, spending by mainlanders has accounted for as much as 40% of all retail sales in the city.
But a crackdown on conspicuous consumption has led some mainlanders to hold back on buying luxury goods – and those that do purchase them are instead flocking to places with weaker currencies, such as Europe and Japan, rather than Hong Kong.
Tighter visa restrictions for visitors from the southern Chinese boomtown of Shenzhen, which neighbors Hong Kong, have also slowed the flow of cross-border visits.
In July, nearly 10% fewer mainland Chinese tourists traveled to Hong Kong compared with a year earlier, and retail sales by value contracted by 2.8%. Luxury retailers such as Prada and Burberry now report slumping sales, and Coach last month closed its four-story shop in prime Central district.
The drop has hit luxury jewelers particularly hard: Chow Tai Fook and Luk Fook reported a respective 24% and 19% contraction in same-store sales in Hong Kong for the three months ending in June,compared to a year ago.
With retail sales continuing to fall and tourist arrivals slowing, the jewelers have had to innovate to stay afloat. Chow Tai Fook is now organizing parades of its products in residential neighborhoods and is hosting events to bring residents into its shops. Luk Fook has begun planning luncheons and fashion shows for repeat buyers and is offering do-it-yourself jewelry sessions for VIP customers.
The slump is not just affecting luxury stores; several mid-market businesses, including cosmetics retailers and drugstores, have also been shuttered.
The city’s major theme parks, Ocean Park and Disneyland, are also shifting their tactics, offering discounts to local ID card holders. A spokesperson for Ocean Park billed the theme park as the “Hong Kong people’s park” in a statement — even though 65% of its visitors are tourists. Disneyland says nearly half its visitors are mainland Chinese.
“A lot of locals actually stopped going [to theme parks] because there were too many tourists,” said Nicole Wong, an analyst at CLSA. “They can definitely do something to attract more locals to go.” She is more skeptical of the ability of jewelry chains and drugstores to draw local customers, however. “Hong Kong people can’t buy that many drugs,” she said.
The city’s chief executive Leung Chun-ying has also said he is concerned about the drop in visitor numbers and has cast blame partly on “particular activities that have taken place in Hong Kong in the past year.” The city has been rocked by last year’s pro-democracy Occupy Central campaign as well as by ongoing small-scale protests by Hong Kong groups angry at the influx of mainland Chinese shoppers in specific neighborhoods close to the border.It’s unlikely that consumption by the city’s 7 million residents could make up for the more than 47 million Chinese tourists that streamed into Hong Kong in 2014. Local shoppers usually buy diamonds and gold products in small quantities as gifts for special occasions, not in bulk as visitors typically do. “In the short-term, local spending won’t make up (for) the shortfall in mainland spending,” said Helen Mak, senior director at Colliers International. She added: “How many weddings a year can you have?”The jewelers have adopted an additional strategy: Reaching out to mainland consumers on their home turf. Kathy Chan, Luk Fook’s chief financial officer, said the company sees “great potential” in mainland China and is “opening 100 stores there every year.”
At 0% growth, the mainland operations of Hong Kong jewelers are far from robust. But less penetration and a much larger market mean the possibility for growth is greater, say the companies.
