Hong Kong Luxury Sales Fall as Chinese Curb Spending

Shoppers from China’s mainland curbed spending at Hong Kong luxury stores during the Golden Week holiday, reflecting growing pressure on the city’s economy from faltering tourist demand.

Purchase of luxury goods by mainland visitors in Hong Kong is set to fall at least 10 percent from a year ago during this week’s holiday, said Joseph Tung, executive director of the Travel Industry Council. The decline comes even as the number of tourists coming from China increases.

Lower spending in Hong Kong hurts consumer companies from U.K.’s Burberry Group Plc. (BRBY) to luxury watchseller Hengdeli Holdings Ltd. (3389) that have invested in stores to profit from Chinese visitors to the city. Weaker retail sales add to the risk of a recession in Hong Kong, where the economy shrank 0.1 percent in the second quarter from the previous three months on declining exports.

“The number of big-ticket transactions has shrunk,” said CCB International Securities Ltd. analyst Forrest Chan, referring to holiday spending. “Fewer people will spend several hundred thousand bucks for a luxury watch. The macro-economic situation is dreadful.”

The eight-day Golden Week national holiday, a shopping and travel season for Chinese consumers, began on Sept. 30. Shoppers are pulling back amid a slump in exports and a contraction in manufacturing in the world’s second largest economy.

Consumer stocks fell in Hong Kong today even as the benchmark Hang Seng Index gained 0.5 percent. Lipstick and make- up seller Sa Sa International Holdings Ltd. (178) lost 1.9 percent at the noon break and jeweler Luk Fook Holdings International Ltd. (590) fell 2.7 percent. Hengdeli slid 1.8 percent and Oriental Watch Holdings (398) dropped 1.3 percent.

Fewer Watches

It is “highly likely” Golden Week sales could fall from a year earlier, Caroline Mak, chairman of the Hong Kong Retail Management Association, said on a conference call with reporters yesterday.

The number of mainland tourists to Hong Kong rose about 6 percent to 412,501 on the first three days of October, according to calculations by Bloomberg based on data from the city’s immigration department.

Still, mainland tourists are spending less this holiday, with average expenditures of HK$5,000 ($645) to HK$6,000 falling below last year’s HK$7,000 to HK$8,000, Tung estimated.

“Golden Week sales this year so far are more or less the same as last year,” said Joseph Chu, an executive director of Prince Jewellery & Watch which runs 13 stores in Hong Kong. “The number of mainland shoppers didn’t decrease but the average spending of each visitor has dropped.”

His Chinese customers on average spent about HK$60,000 per bill during Golden Week this year, compared with HK$80,000 last year.

China’s non-manufacturing industries in September expanded at the weakest pace since at least March 2011.

Sa Sa expects “double-digit” growth for Golden Week, compared with last year’s 30 percent, according to Janette Lo, a spokeswoman at iPR Ogilvy, the public relations agency representing Sa Sa.

Negative Retail Sales

Retail sales in Hong Kong, which attracts mainland tourists because of its lower taxes, have this year grown at the slowest pace since the global financial crisis. Retail sales rose 4.5 percent by value in August, below the median 5.8 percent estimate from 10 economists, according to data compiled by Bloomberg.

Sales rose 3.9 percent in July, the least since September 2009. The Hong Kong Retail Management Association yesterday cut its forecast for full-year sales growth to 7 percent from a previous estimate of 10 percent to 13 percent.

“Some of the jewelry sellers in Hong Kong have posted negative growth in same-store sales since July,” said Chan, the analyst. “This trend is very likely to continue through the Golden Week.”

European Bargains

Some Chinese shoppers are hunting for bargains in Europe instead of Hong Kong as the euro has fallen about 2.5 percent against the yuan over the past twelve months.

Outside a Dior store this week in Hong Kong’s Central District, Vivian Pan, an entrepreneur from Shanghai, said she planned to visit stores of high-end brands such as Hermes and Chanel. Pan, who visits Hong Kong four or five times a year, said she is starting to see better shopping choices in other parts of the world. “We like to shop in Europe more these days,” she said.

Wu Hong, a 26-year-old tourist from Hunan province, said she planned to spend HK$30,000 to HK$40,000, about HK$10,000 lower than what she would have spent last year when the economy was more robust.

Recession Risks

Hong Kong’s risk of a “technical recession” may increase after declines in exports and a slowdown in retail sales, Financial Secretary John Tsang said in September.

The economic slowdown in Greater China has rippled through the global retail industry.

Hengdeli, the partner of Swatch Group AG (UHR) in China, in August said it expects sales growth to slow in the second half. The company gets about 28 percent of annual revenue from Hong Kong, according to data compiled by Bloomberg.

Profit for the 12 months through March will be at the lower end of analyst estimates after sales growth slowed globally, London-based Burberry said last month. The U.K.’s largest luxury goods maker gets about 37 percent of sales from the Asia Pacific region, according to data compiled by Bloomberg.

“The global economic downturn has affected China’s economy and subsequently taken a toll on the demand of goods,” said Tung. “The falling trend of luxury goods demand is visible.”

To contact the reporter on this story: Anjali Cordeiro in Hong Kong at acordeiro2@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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