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Bleak prospects for Hong Kong luxury goods market

Luxury watch

Analysts are warning of challenging times ahead for the Hong Kong luxury goods market.

In a research note, Kathryn Parker and Flavio Cereda, equity analysts at Jefferies, say sentiment within Hong Kong has almost unanimously worsened since March due to the lingering effects of the trade war reducing high-quality tourism traffic into the territory, the rebalancing of prices after Mainland China’s VAT cut, ongoing Hong Kong protests and closer monitoring of the daigou by the central government. 

“We are concerned that there is an elevated reliance on mainland Chinese consumers within luxury stores in Hong Kong,” the pair said.

Luxury-goods stores in Hong Kong commonly receive as much as 60 per cent of their sales from mainland visitors – yet more and more mainlanders are choosing to shop at home where tax cuts have seen prices ease.

“We were concerned to see further investment such as the opening of the new K11 Musea mall [in Kowloon], rather than a contraction of [the retail] footprint,” the analysts said.

“Discussions with mainland Chinese consumers, particularly those in Shanghai, showed continued optimism in terms of both sales data and wider sentiment, which is despite the record-breaking first half.

“An abundance of new malls within Hong Kong, Shanghai and Beijing means rents are not going up, but it is imperative that brands keep their store footprints dynamic and have a presence in the lux malls with the most traffic,” said Parker and Cereda.

“All malls are increasing the proportion of food and beverage and experiences, such as cinemas and wellness, to drive footfall so there is relatively less space for retail.”

While the Hong Kong luxury goods market suffered a downturn in the second half of last year, official retail sales figures for the first five months of this year show a modest 1.8 per cent decline against a higher base last year. But the latest figures are from May, prior to the acceleration of street protests in June and reflecting the later timing of the Mainland China Labour Day holiday period. 

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