Hong Kong protests expose unhealthy retail mix

The continuing pro-democracy protests in Hong Kong is taking a toll on the city’s retail sales, and puts the city’s deeper issue of an unhealthy retail mix into light.

The number of visiting mainland tour groups is expected to be down by nearly a third during one of the busiest shopping seasons of the year, the China National Day holidays known as Golden Week. Deutsche Bank estimates a loss of HK$6.8 billion, or 0.3% of the city’s GDP, if mainland tourist arrivals drop lasts a month; while ANZ Bank suggests a HK$2 billion loss of retail sales. Luxury goods, cosmetic products and consumer durables sales would definitely be hard hit.

Fashion retailers saw sales fall between 30% and 50% from the same period last year, while department stores and supermarkets saw drops of 10% to 60%, according to the Hong Kong Retail Management Association.

The downward trend for luxury sales however began before the protests, with China’s crackdown on corruption and dwindling Chinese tourist numbers coming to Hong Kong. LVMH, Kering and Prada have all cited Hong Kong as an area of concern earlier this year. CEO of jewelry company Plukka Joanne Ooi told Bloomberg last week the slump caused by the protests was a temporary blip, but the industry should be more concerned of the ongoing long-term decline caused by other factors.

The sheer number of Chinese tourists has bumped up Hong Kong’s retail sales – and indirectly skyrocketed rents – for the past few years. The city has seen an abnormal wave of expansion for luxury retailers with jewelers and high-end brands taking up store spaces and pushing up rents in key areas. In Tsim Sha Tsui alone, jeweler Chow Tai Fook has a whopping total of 16 branches. In Mong Kok, the brand has 15 stores while another jeweler Luk Fook has nine.

Analysts have warned of unsustainable growth, as Hong Kong’s retail development is  predominantly based on Chinese tourist spending and demands. Joe Lin, executive director of retail services at CBRE Hong Kong, told New York Times last year that the retail rent pressures have become “very unhealthy”, with luxury and jewelry dominating 90% of the space in prime locations and pushing out local shops and restaurants.

The protests are about full voting rights for the Chief Executive election in Hong Kong in 2017, but they are also shedding a new light on the city’s increasing dependency on mainland China and retail sales is only one part of it.

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