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Economy

Hong Kong retailers log biggest drop on record as turmoil drags on

Businesses say there is no sign of improvement, as tourists shy away

A Bank of China branch in Hong Kong was damaged during an anti-government demonstration on Oct. 1. Some mainland-connected businesses have been the target of vandalism by protesters.   © Reuters

HONG KONG -- Retailers in Hong Kong suffered a plunge in August sales and see no relief in sight, as the continuing social unrest scared off travelers and forced the closures of stores.

Total retail sales slumped 23% in August from a year earlier, worse than during the depths of the Asian financial crisis in 1998, according to a government report on Wednesday. The total retail value for the month fell to its lowest level since February 2011, to 29.4 billion Hong Kong dollars ($3.7 billion).

That follows a report earlier this week on tourist arrivals dropping 39.1% for August.

"We can't see the flush of dawn," Annie Yau Tse, chairwoman of the Hong Kong Retail Management Association said, adding that there was no sign of improvement for September and October as the protests drag into their fourth month.

Shops and restaurants in the major protest sites increasingly are opting to close their businesses, as the level of violence escalates. Police shot an 18-year-old protester on Tuesday, while hardcore demonstrators threw petrol bombs and set fires at the entrances of rail stations. Several stores whose owners are perceived to have pro-establishment and pro-China connections, including coffee chain Starbucks, also were vandalized.

A government spokesperson said on Wednesday that retail sales are expected to "remain in the doldrums" in the near term, as the worsened economic outlook and violent protests continue to weigh on consumer sentiment and tourism.

Financial Secretary Paul Chan has warned on several occasions that the city, already struggling from the negative impact from the U.S.-China trade dispute, could plunge into recession, as gross domestic product in the April-June quarter contracted 0.3%.

Hong Kong has a long-held reputation as a shopping hub thanks to its duty-free status, and many retailers, especially those that sell luxury goods, have relied on mainland shoppers for business. But as mainland visitor arrivals slumped 42.3% in August, sales have retreated.

Sales of jewelry, watches and valuable gifts decreased 47.4% in August from a year earlier, while clothing and footwear declined 32.1%.

Amid dwindling sales, retailers are trying to figure out how to cut their costs.

Tse of the retail association said many stores have stopped hiring part-time workers and have started asking their employees to take no-pay leaves. While laying off employees has not become a widespread trend, Tse fears that retailers would have to do so eventually if landlords do not lower rents.

The government last month took the lead on cutting rents for retailers at its properties as part of its relief measures. That was followed by similar action from landlords of the upscale Pacific Palace and Hysan Place shopping malls, whose businesses were badly affected by the protests on weekends. But Tse noted that "many major property developers haven't responded to the call."

"The developers are forcing us to die by not cutting rents," she said.

A worker cleans graffiti sprayed by anti-government protesters at a Starbucks shop a day after a protest in Hong Kong's upscale shopping district of Causeway Bay on Sept. 30.   © Reuters

In addition to businesses that suffer from decreasing numbers of customers, others are affected because of their owners' political views or leanings.

On Tuesday, some stores and businesses that are perceived to have pro-establishment connections were vandalized by protesters. Storefronts of popular chains including Arome Bakery, Genki Sushi and Starbucks, all three operated by local company Maxim's Caterers, were smashed and defaced with graffiti.

Annie Wu, daughter of Maxim's founder, has been heavily criticized for her remarks given to the United Nations Human Rights Council on Sept. 13, when, along with billionaire businesswoman Pansy Ho, she condemned the protesters' actions.

Soon after, students at the University of Hong Kong and the Chinese University of Hong Kong, organized sit-ins at campus canteens operated by Maxim's, calling for a boycott. That was followed by an attack on Sept. 25 at one of the food group's businesses at a shopping mall.

The damage meted out on Tuesday was spread across the city. Protesters broke into branches of a supermarket chain for its alleged ties to a group of triad members who attacked protesters.

Restaurants belonging to Japanese fast-food chain Yoshinoya were also damaged after the company's public disavowal of an advertisement published on its Facebook account that mocked the Hong Kong police force.

Businesses with connections to the mainland also were vandalized.

Bank of China (BOC) ATMs and two of its branches were broken and sprayed with graffiti, following a campaign on social media asking Hong Kong people with deposits in the mainland bank to transfer their funds to other banks. And an office of mainland travel agency China Travel Service was trashed.

Contributing writer Eduardo Baptista contributed to this article.

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