Hong Kong retail ‘losing its edge’

Growth in overnight Mainland visitors to Hong Kong has slumped to a fraction of last year’s figures.
Total visitor numbers from China’s Mainland in May rose by five per cent year on year – but it’s the day trippers making the numbers, not the cashed up Chinese staying in Hong Kong hotels and splurging on luxury goods.
The latest Visitor Arrivals Statistics for May released by Hong Kong Tourism Board show the number of overnight visitor arrivals grew a mere 1.1 per cent when compared to last year’s 6.7 per cent.
Combined with the retail sales for May released earlier this week – which saw a 4.6 per cent seasonally adjusted increase in spending but a 15 per cent slump in luxury goods sales – the drag from the slowdown in tourist spending at retail level is notable.
Hunter Williams, a partner with OC&C Strategy Consultants, Greater China, believes Hong Kong is losing its edge to attract tourist money in the future.
Furthermore, he argues, more Chinese travellers are expected to flush all over the world yet the growth in “per pax” spending is likely to be slower.
The number of outbound Chinese travellers topped 100 million for the first time last year – and that figure is predicted to double by 2020 at the current annual growth of 33 per cent.
Williams says the problem for Hong Kong and Macau is that both SARs have lost their competitiveness.
“Hong Kong and Macau are relative losers in the fight for the Chinese travel dollar. Both are seeing lower tourist arrival numbers and significantly lower “per pax” spending. Attempting to shift from exclusively targeting “high rollers” to competing for “middle class” tourists is likely to prove a painful transition,” he says.
Group travel is still popular amongst Mainland Chinese and draws from “a seemingly bottomless reservoir of first-time travellers,” but the world is now welcoming greater numbers of independent Chinese travellers.
“We believe there is no longer a “Chinese traveller” per se, but rather, four segments with distinct shopping behaviour.  OC&C Strategy Consultants defines these segments as first-time “travel tasters,” deal-savvy “savvy shoppers,” “white collars” and the high-spending “new elite.”
Growth in “per pax” spending is likely to be slower, driven by several factors.
“Firstly, overseas travel is increasingly democratised and open to middle class Chinese, rather than being the exclusive preserve of the elites. Secondly, reacting to exchange rate changes and cuts in import duties, many luxury brands have lowered domestic prices in China, lessening the incentive to shop abroad.
“Thirdly, China’s anti-corruption campaign continues and “tigers and flies” alike are rightly wary of flaunting ill-gotten gains.”
A “wealth effect,” says Williams, due to soaring stock market performance could offset some of these factors or a crash could exacerbate them – but the volatility of China’s equity markets makes such speculation problematic.
Williams also warns retailers to make sure they appreciate how Chinese consumers almost live their lives on their smartphones.
“From ordering a taxi (Didi Kuaidi); socialising with friends (WeChat); making discounted reservations for dinner (Dianping); shopping the latest fashions (Taobao and Tmall), and even paying for daily necessities at the local convenience store (Alipay), Chinese live on their phones.”
He says retailers in destinations preferred by Mainland Chinese should expect greater numbers of Chinese travellers than ever this summer.
“However, these travellers will spend less and will be more digitally demanding than ever. This can be a challenge for the overseas businesses targeting them, as the digital tools and platforms they are accustomed to using are generally China-only.
“More and more international brands are active on Chinese social media sites like WeChat, but few have a full, 360-degree digital presence.”

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