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Economy

Hong Kong retailers stuck in wintry chill

Retail sales seen bottoming out in 2017

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Hong Kong's Harbour City shopping mall during a ceremony to switch on the Christmas lights on Nov. 10   © Reuters

HONG KONG -- Despite a steady flow of mainland Chinese tourists to the territory, there is scant relief for Hong Kong retailers as these consumers are tightening their purse strings.

November retail sales fell 5.5% on the year to $36 billion Hong Kong dollars ($4.6 billion), extending a 21-month streak of decline. The contraction, however, was widened from a 4.1% fall in September and a 2.9% dip in October, official data showed on Tuesday.

Broken down by category, sales of electrical goods and photographic equipment fell by the biggest margin with a plunge of 27.3% year-on-year, followed by that of motor vehicles and parts that saw a 15.5% decline. Sales of watches and jewelry that are popular among mainland Chinese tourists swung back into a double-digit decline of 14.4%, against a 0.1% drop posted a month ago.

Clothing and department store items were some of the brighter spots showing an increase in sales by 4.1% and 1.7% respectively. Sales of cosmetics and medicine remained in negative territory for the second month in a row, shrinking 3% on the year.

A government spokesperson noted that the weaker retail market in November was "conceivably dragged by the reduced tourist spending on some big-ticket items." The number of mainland tourists to Hong Kong stabilized at a 3.5% year-on-year decline in November, the same as a month ago. While the fall in overall tourist arrivals narrowed to 2.1%, the number of higher-spending overnight visitors was down 16.4% on the year.

Calling the latest retail figures "somewhat disappointing," Retail Management Association Chairman Thomson Cheng said the changing spending pattern of mainland tourists was mostly to blame. Tourist spending accounts for about a third of Hong Kong's retail sales and local consumers contribute the rest.

Without giving details, the government announced on Tuesday it will shore up local consumption to relieve pressure arising from a stronger Hong Kong dollar and uncertainty over the trade policy of U.S. President-elect Donald Trump.

While offering incentives such as tax rebates for residents might be good news for retailers, Cheng said the real impact remained to be seen. The boost from local consumption during holiday seasons was muted as consumers were "less enthusiastic" about initial promotional sales these days and tend to wait for steeper discounts amid a slowing economy.

Cheng expects retail sales to bottom out in 2017 with at worst a low single-digit decline and rules out another wave of downsizing by retailers. "They should have done what they could do for now after numerous closures and layoffs," he said.

But the retail slump seems far from over for upmarket retailers. U.S. lifestyle fashion house Ralph Lauren shut its 20,000-square-feet store in the shopping hub of Causeway Bay in December, along with shop closures by Paul Smith and British tailor Gieves and Hawkes.

On New Year's Eve, Prada closed its 3,000-square-feet boutique at the landmark Peninsula Hotel, the first store it opened in Hong Kong in 1986. The Hong Kong-listed Italian luxury brand did not comment on the closure. Its financial statement showed that sales in greater China slumped by a quarter in the first half of 2016 as Hong Kong and Macau continued to "weigh heavily" on the region's slowdown.

But industry observers noted that Prada's move made sense. The historical Peninsula Hotel has been in competition with newer luxury hotels and malls in town, making it a "lesser magnet" for wealthy shoppers, said Pascal Martin, a partner at OC&C Strategy Consultants.

"One could speculate that the performance of luxury brands in the Peninsula may have suffered as a result, not justifying anymore the level of rent it used to ask for," said Martin.

From a landlord's perspective, subletting the store to smaller tenants could also yield higher rent per square foot. "But it might be challenging to attract tenants with brands as prestigious as Prada" into smaller units, he added.

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