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No strong recovery in Hong Kong retail sales until 2018

Sales to fall 3-4% this year as mainland tourists spend less

Russell Street in Causeway Bay is always crowded with shoppers, but Hong Kong Retail Management Association forecasts another year of falling sales in 2017. (Photo by Kenji Kawase)

HONG KONG -- Despite a return of mainland Chinese tourists to mark the start of the Year of the Rooster, it might be too early to celebrate for Hong Kong retailers. Sales will continue to fall this year, according to industry observers.

Thomson Cheng Wai-hung, chairman of Hong Kong Retail Management Association, estimates the territory's retail sales will fall 3-4% on the year in 2017, an improvement from the 8% drop in 2016.

Last year, retail sales fell to 437 billion Hong Kong dollars ($56.3 billion), marking three years of decline and the worst full-year slump since 1998. This was despite some signs of improvement when the decline in sales in December narrowed to 3% from a year ago as more mainland visitors spent their holiday in Hong Kong.

"We might be getting closer to the end of the tunnel," Cheng said on Thursday. But citing uncertainty in the global environment, such as a possible U.S.-China trade war, he expects the retail market to bottom out only in 2018 at the earliest. "It is hard to say whether it will be a recovery in L shape, V shape or U shape," he said.

There were winners and losers during the Chinese New Year holiday.

Luxury retailers were hit by dwindling sales as Chinese tourists tightened their purse strings amid a slowing economy. Prices in Hong Kong are also less attractive for mainlanders due to a weaker yuan and the Hong Kong dollar's peg to the U.S. dollar, which had strengthened during the year.

Chow Tai Fook Jewellery Group recorded an 11% slump in Hong Kong and Macau sales from a year ago between Jan. 14 and Feb. 3, which covered the Chinese New Year holiday.

Mass-market retailers fared better. Hong Kong's largest cosmetic chain Sa Sa International saw a 3.5% sales increase at home and in Macau from Jan. 28 to Feb. 3, helped by a rebound in mainland tourist traffic. While the number of transactions they made increased, the average spend per transaction was down 4.6% from a year ago.

Given the latest data over the holiday season, Chairman and CEO Simon Kwok Siu-ming is upbeat on the outlook. "It is recovering, and December was almost flat [compared to a year before]," he told Nikkei Asian Review on Tuesday.

He is positive about mainland customers as well. "I am not worried about China and the Chinese economy," he said. Ease of travel to Hong Kong in the near future with the expected opening of a high-speed railway link and bridge connecting to Macau and Zhuhai in southern Guangdong province will make the territory "more accessible" for mainlanders.

Some mid-tier fashion retailers are turning to e-commerce to expand their reach. Walton Brown, a subsidiary of Lane Crawford Joyce Group that has a portfolio of premium brands including Kate Spade and Brooks Brothers, will launch in March its own mobile platform MyMM.com to target China's growing middle class.

Thomson Cheng Wai-hung, chairman of Hong Kong Retail Management Association, speaks to reporters on Feb. 9. (Photo by Jennifer Lo)

Cheng, also president of Walton Brown, said the platform will be a hybrid of Alibaba Group Holding's Tmall, Tencent Holdings' WeChat messaging app and Instagram. It is a joint venture between Walton Brown's WWE & Company, eCargo and Wharf, a subsidiary of Hong Kong developer Wheelock & Co.

The platform will not compete directly with those operated by internet giants such as JD.com. Rather, it aims to fill a market niche by selling affordable luxury items that are exclusively from the group's fashion labels. "How we differ is there will be no fake goods," said Cheng.

Last year, Alibaba Founder Jack Ma Yun controversially said that some fake brands were of "better quality and better price," after the Chinese e-commerce group was criticized for its longstanding tolerance of counterfeit goods on its platforms.

Meanwhile, the retail association in Hong Kong has rolled out an e-shop accreditation program to recognize quality online retailers. Six local brands were accredited a month after the program was launched in December. Sa Sa is awaiting for its accreditation.

Asked whether it is too late for Hong Kong retailers to catch up with its mainland peers, Cheng said: "Quality and authentic products will appeal to a lot of mainlanders," especially those from inner Chinese cities.

Nikkei deputy editor Kenji Kawase contributed to this story.

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