Could a dour Christmas offer Hong Kong retailers opportunity?December 2, 2015 / By
As the peak shopping season shifts into high gear, Hong Kong retailers are bracing for what is looking to be a chilly end of the year.
Historically, holiday sales have provided a lift to retailers’ annual performance. Over the previous 10 years, December retail sales averaged HKD 34.3 billion, or 10.5% y-o-y growth. But this year, amid an ongoing slump afflicting the sector, can a similar bump be expected? At least two key factors lend doubt to whether this Christmas season will be very merry for Hong Kong retailers.
First, local retailers are operating in a discouraging environment for sales growth. The volume of mainland tourist arrivals, after increasing 16% in 2014 over the previous year, has flatlined, edging up a mere 0.3% for the year as of September.
The drop-off is more pronounced among high spending overnight visitors from China, a key driver of luxury goods sales. Deterred by a strong Hong Kong dollar and vocal protests against certain mainland shoppers, those visitor numbers decreased 5.5% year-to-date compared to the same period in 2014.
As a result, retail sales for the territory decreased 6.4% y-o-y to HKD 35.2 billion in September, retreating for the seventh consecutive month. The sector remains in the red with growth for the year to date down 2.7%, led by a 14.7% drop in jewellery & watch sales and negative growth among 15 of the 23 retail outlet categories tracked by the government.
Another factor is the projected gap in last quarter retail sales compared to 2014. To break even, sales would need to average 7.6% higher each month over the previous year. That gap is likely too large for retailers to make up, especially in a down year.
Although retail sales continue to face downward pressure heading into 2016, one positive is falling rents. JLL forecasts high street rents to decrease 20–25% by the end of the year. Already, cosmetics retailer Sa Sa reportedly has seized on a 40% reduction off the lease at two stores, and Jeweller Chow Tai Fook is set to book a 20% discount at some of its locations up for renewal this year.
As rents drop, opportunities become ripe for brands to take up spaces that previously were unaffordable. Certain fast fashion and lifestyle brands, for example, are in position to take advantage of the changing environment by opening new stores in prime locations.
In the end, consumers also will benefit from a greater retail mix, offering a wider variety of shops and enhancing the overall retail landscape. That surely is reason for cheer this holiday season.
More on 'Retail' in 'Hong Kong'
- “Pawsitive” outlook for Hong Kong pet-friendly retail marketJanuary 30, 2024
- Finding opportunities in Hong Kong’s changing retail landscapeNovember 10, 2023
- Sustainability – the up-and-comer in HK retail trajectoryJuly 14, 2023
- The Hong Kong property market: where to from here?May 5, 2023
- Emerging opportunities in Hong Kong’s F&B industryApril 18, 2023