Shopping paradise struggles as retail sales plunge
Suffering from both trade war and escalation of protests, retailers in Asia’s shopping paradise have endured a slump in summer. The value of sales plunges 23% in August compared with last year. Shopkeepers in popular tourist spots felt the winter of retailing is coming with hard times in both the number of customers and the value of turnover.
Gucci salesman at Sogo in Causeway Bay Bobby Tang said that the business had been affected a lot. “Originally we could have a lot of clients before June, it was without doubt that I could have one client in a minute. But now we rarely have clients when there is a demonstration, sometimes we just saw 3 to 4 customers in more than an hour.”
Mr Tang said turnover of his counter before the protests escalated in June was about $80,000 to $100,000 a day. But now they just got around $20,000 per day. What he worried about most is whether he can get enough salary from his full-time job. “For now, I don’t have an idea if the company has any measures to cope with the situation.”
Retail sales expected to fall in double-digit
Not only frontline salespeople hold a pessimistic view towards Hong Kong's retail sales, CUHK associate professor of Economics Chong Tai-Leung estimated the volume of total retail sales in the next few months would decrease by 7-10% year on year. “The worst-case for the following months would be a drop in 13% year-on-year.” According to Prof Chong, although the current social movement was not the only reason for the fall of retail sales, it has doubled the loss.
Hong Kong retail sales in August dropped 23% in value to HK$29.4 billion against the same period last year, according to the Census and Statistics Department. The most affected types of retail products are jewellery, watches and clocks, and valuable gifts, which decreased by 47.4% in the value of sales. The volume of retail sales fell to $29.4 billion marking a seventh consecutive month of annual declines and the biggest decline since February 2016.
Financial Secretary Paul Chan Mo-po described Hong Kong as having entered a period of "internal and external difficulties".
He estimated that Hong Kong's economy will experience negative growth in the third quarter, bringing Hong Kong's economy into technological recession. He also pointed out that the economic challenges in the fourth quarter are still very large, depending on whether the violent demonstrations can calm down.
Retailers complain about low turnover
With turnover decreased by more than 50%, some shopkeepers in Causeway Bay have already felt the winter of Hong Kong's retail industry.
Ms. Fung, 25, who is in charge of a skincare shop in Time Square, said that the number of clients had decreased by 50% compared with the same period last year. “The protest will possibly last until the end of the year, we are afraid that there will be a significant decrease in our revenue. We may even face loss at Christmas which should be the best season for retail sales.” Ms. Fung’s shop is located at the underground of Time Square, a popular shopping center of Causeway Bay.
The earning statements published by large Hong Kong-based retailers also kept indicating a recession of the Hong Kong retail sales industry. Swatch Group (SWGAY) cited in its half-year report that “sales in Hong Kong, an important sales market with attractive margins, suffered from political turbulence. This resulted in a double-digit decline in sales.” According to CHOW TAI FOOK (1929 HK), its second-quarter retail sales value recorded a drop of 6% on the year in Hong Kong and Macau. When it comes to Oriental Watch (0398. HK), the turnover of second-quarter decreased by 15.7%.
Mainland visitors decrease sharply, most concern about safety issues
From the beginning of June, mainland travellers have decreased sharply. Bus stops in front of the Times Square and West Kowloon station were no longer crowded with mainlanders.
Mainland tourists are the main visitors of Hong Kong tourism, consisting of 78% of the overall 65.15 million tourists arrivals in 2018. However, the Hong Kong Tourism board statistic shows that the number of mainland tourists dropped 42.3% in August compared to last year, with their main concern about safety. The overall number of tourists in August also dropped by 39.1%.
The airport parade that erupted in early August also forced Asia's busiest airport to temporarily stop, and hundreds of flights were forced to cancel until the court issued an interim injunction. Jenny Liu, who originally planned to travel to Hong Kong, has cancelled her trip. “I heard some news about the protest on social websites, I am worried about my personal safety.”
Landlords cut rents to help retailers sail through winter
In the worst case, the Hong Kong landlords may need to cut rents by 25% in shopping malls in 2019 and 2020, according to the research report of Daiwa Capital. When it comes to shops along the street, the figure could be double.
Earlier this month, the Housing Authority announced rent relief for 2400 retailers, cutting rents by half for the next six months. Following Financial Secretary Mr Paul Chan Mo-Po’s announcement of a series of measures to support local enterprises and safeguard jobs to counter the challenging external and local economic environment, including reduce the rental for most short term tenancies of government land, public market stalls, and catering establishments and retail stores by 50 per cent for six months.
Apart from government support, companies from the private sector has offered rent relief to support tenants in a difficult time. Several property management enterprises announced that they would provide measures to relieve tenants’ burdens, as HKEJ reported. The seven property management enterprises include Hysan, Lifestyle, MTR, SHKP, Link, HLD and Wharf.
Swire became the first Hong Kong developer to offer relief by lowering rents temporarily at Pacific Place. Lawsgroup has also provided a one-off 20 per cent rent cut in August because of the heated protests.
In August, Hong Kong Retail Management Association (HKRMA) urged the landlords and retailers to sail through hard times together, urged the former to halve rent for the latter for a term of six months.
《The Young Financial Post 新報人財經》