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2016, a year to forget for luxury retailers in Hong Kong

By Angela Gonzalez-Rodriguez

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The retail sector in Hong Kong recorded the poorest annual sales in nearly two decades last year, according to a report by the ‘Nikkei Asian Review’. The Hong Kong government argues that this ‘annus terribilis’ partly responds to the declining number of Chinese tourists visiting the territory.

The report reveals that retail sales in Hong Kong came in at 436.6 billion Hong Kong dollars in 2016, what implies an 8.1 percent dip in comparison with retail sales from the previous year. This is, in fact, the sharpest decline since the Asian financial crisis in 1998 when sales plummeted 17 percent year- on-year, highlights the ‘Macau Daily Times’.

On the upside, some analysts say they start to see the first signs of a gradual recovery in the territory’s economy as the number of Chinese tourists stabilizes and the performance of retail sales in the latter half of last year improved when compared to the previous six months.

Last year, retail sales fell in every month. However the year-on-year declines waned in the latter months, moving from a 5.5 percent year-on-year decrease in November to 2.9 percent in December.

“The near-term outlook for retail sales business will still depend on whether the recent improvement in inbound tourism could gain more traction and the extent to which local consumer sentiment will be affected by various external uncertainties,” a Hong Kong government spokesperson told the ‘Nikkei Asian Review’.

It’s worth calling out that the number of mainland visitors to Hong Kong in December indicated a reversal after months of decline. The number of visitors increased by 9 percent year-on- year, led by the Christmas holidays, and outperforming the 7.8 percent growth rate observed year-on- year that month in Macau.

Worst affected retailers were those operating within the luxury and upmarket niches. Jewelry group Chow Sang Sang issued a profit warning last month that its full-year earnings for 2016 could drop as much as 40 percent. Meanwhile, fashion retailer Bauhaus closed four shops across Hong Kong and Macau as its same store’s sales declined 10 percent year-on-year in the final quarter of 2016. Its direct competitor, I.T, recorded a slightly smaller decline (-4.6 percent) in store sales in Hong Kong during the three-month period between September and November 2016.

Market sources recall that the vast majority of luxury retailers in Macau and Hong Kong depend on the influx of wealthy tourists coming from mainland China as their main source of revenue.

“Looking ahead, the near-term outlook for retail sales business will still depend on whether the recent improvement in inbound tourism could gain more traction and the extent to which local consumer sentiment would be affected by various external uncertainties,” the government said in a statement issued earlier this month.

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