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Hong Kong protests sap sales for city's retailers

6.7% slump in June blamed on tourism slowdown amid demonstrations

HONG KONG -- Retailers in Hong Kong suffered a plunge in sales during June, as the mass street protests triggered by the city's now-suspended extradition bill took a heavy toll on consumption.

Total retail sales slumped 6.7% on the year, deeper than the 1.4% decline reported in May and far behind the market consensus, data released Thursday by the Hong Kong Census and Statistics Department shows.

Hong Kong's government blames the heavier decline on a more cautious local consumer sentiment and slower growth in tourist arrivals, warning that the recent demonstrations could dent retail business further if continued.

Since early June, protesters have staged rallies across the city almost every week, with the largest one drawing an estimated 2 million people. Though most demonstrations remain peaceful, violent clashes have occurred between police and hardcore protesters, prompting some shops to close early.

The retail category covering jewelry, watches and valuable gifts -- items popular with tourists -- took the biggest hit with a 17.1% decline in June, after falling just 2.9% in May.

Analysts forecast a dimmer outlook for the second half. Travelers contribute roughly one-third of Hong Kong's retail sales, but tourists from mainland China might cancel their trips to the city as clips of violent clashes have circulated widely on social media since July.

The political turbulence hampers Hong Kong retailers already suffering from the U.S.-China trade frictions as well as a weaker Chinese yuan, which discourages purchases by mainland tourists in the city.

The Hong Kong Retail Management Association warns of a double-digit decline in sales for the year if the government fails to address the political crisis, as protests are spreading to more districts and show no sign of ending.

Some retailers in prime commercial districts reported sales declines of as much as 50% in the past two months, Chairman Annie Yau Tse said, citing internal surveys with the association's members. And some sales staff claimed their commission fees dwindled by one-third, she said.

"The declines are quite shocking," said Tse, who urged landlords to reduce rents to ease pressure on retailers.

Sales dropped more than 10% for Chow Sang Sang Jewellery, one of the largest jewelers in Hong Kong, during June and July, said Lau Hak-bun, general manager of retail operations. The chain operates more than 50 stores in Hong Kong.

"Our industry bears the heaviest brunt from the protests," Lau told the Nikkei Asian Review. The political tensions have dampened consumer appetite for valuable goods in general, he said, as even stores in areas unaffected by demonstrations reported sales below expectations during the period.

Lau said the jeweler is taking a more cautious approach, suspending new store openings in the second half of the year.

Brokerage CLSA last week downgraded the stock of Chow Tai Fook Jewellery Group to "sell" in its research report, calling the jeweler an "innocent victim" in Hong Kong's political clashes.

"Protests including the weekend gatherings" in Hong Kong "have evolved from a temporary event" into a recurring series, "with more severe violent acts emerging," analysts said in the report. "Tourist arrivals and consumer sentiment will inevitably get hurt in the near term."

Such events also could cause longer-term damage to Hong Kong's tourism image and retail, the report said.

Jason Wong Chun-tat, chairman of the Hong Kong Travel Industry Council, told the Nikkei Asian Review that 40% to 50% of overseas tour groups to the city have been canceled due to safety concerns. Growth in visitor arrivals from the mainland also slowed in June, Wong said, and he expects a decline for July and August as well.

A survey conducted July 23-25 by the American Chamber of Commerce in Hong Kong found that local businesses already report "serious consequences" such as short-term revenue decline and postponed investments. The chamber said members also are concerned that the failure to address the instability and worsening perceptions may lead to "irreparable damage" over the long term.

Paul Chan, Hong Kong's financial secretary, warned on his blog that "the employment and livelihood of ordinary people will be affected in the long run," as foreign businesses and tourists no longer will consider Hong Kong safe.

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