Why Hong Kong luxury sales won’t suddenly rebound now mainland Chinese shoppers are back

Why Hong Kong luxury sales won’t suddenly rebound now mainland Chinese shoppers are back
  • It will take almost a year for luxury spending in Hong Kong to return to levels seen in the first half of 2019, experts predict, despite borders reopening
  • Logistical issues surrounding cross-border travel with mainland China, closed-down stores, and the rise of shopping in Hainan all hamper a speedy recovery

The end of Beijing’s zero-Covid policy came as a great relief to the luxury sector, which from late 2019 had been at the mercy of store closures, dampened demand and sudden lockdowns in its most lucrative market. But it is becoming increasingly clear that a dramatic rebound isn’t on the cards for Hong Kong’s high-end retailers.

Domestic travel within mainland China had fully recovered in January, with leisure travel up 10 per cent from January 2019, according to luxury analytics firm Bernstein.

But short-haul trips to destinations including Macau and Hong Kong only reached 11 per cent of 2019 levels. Hong Kong received around 104,000 mainland Chinese visitors during the Lunar New Year holiday period from January 21 to 26, compared with about 690,000 during the same period in 2019.

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Comparing the two neighbours and their opening up again to mainland Chinese visitors, Macau, which didn’t require visitors to prepare a health assessment document nor a 48-hour Covid-19 test, is seeing a speedier recovery, with Hong Kong “still lagging behind”, Bernstein analysts write.

But Hong Kong on Monday dropped the need for PCR tests for travel to and from the mainland, which will help the city catch up.

A rebound is needed more than ever. Before the pandemic and 2019’s anti-government protests, Hong Kong’s luxury retailers received 70 per cent of their revenue from mainland Chinese tourists, says Imke Wouters, a partner overseeing retail and consumer goods at consulting firm Oliver Wyman.

During the pandemic, travel restrictions upped demand for luxury from local residents. But since Hong Kong’s borders have opened, locals have returned to global hubs such as Tokyo to shop.

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“The last two months have been even tougher,” says Wouters, estimating it will take almost a year for spending to reach that seen in the first half of 2019.

In spite of this drawn-out recovery, Hong Kong will still be one of the first retail hubs to benefit from China’s reopening.

According to a recent Oliver Wyman report, 40 per cent of high-income international travellers listed Hong Kong as their top choice to visit in 2023, making it the most popular international destination, over the likes of Macau, Japan, Thailand and Singapore. For those with plans to visit the city in 2023, shopping was listed by 59 per cent as a key reason.

We hope to see good movement in Q2 with momentum picking up in the second half, but none of us has a crystal ball
Blondie Tsang, president, he Lane Crawford Joyce Group

The first signs of recovery are already materialising in high-end mall Harbour City, where Bernstein analysts say visits to top luxury stores on January 28 were up more than 100 per cent from their previous visit in October 2022.

“Mainland spending contribution in our Hong Kong stores is growing week on week,” says Blondie Tsang, president of The Lane Crawford Joyce Group, which operates a Lane Crawford store and a Joyce store in Harbour City.

In the first week of February, Lane Crawford and Joyce saw spending from mainland Chinese privilege card members increase by “strong double digits” week-on-week.

Tsang notes that shoppers are not only buying menswear and womenswear, but also investing in homewares such as luxury duvets, furniture, luggage and special-edition whiskeys. Due to a fluctuating exchange rate, big-ticket items like fine jewellery, watches and designer handbags are expected to do especially well, Tsang adds.

To power its recovery, the group is also on a recruitment drive for local sales associates.

“We’re not expecting a huge rebound or a spike in revenge shopping, but something more sustainable,” Tsang says. “We hope to see good movement in Q2 with momentum picking up in the second half, but none of us has a crystal ball.”

Before high-end retailers see anything close to H1 2019 figures, logistical issues such as the mainland’s visa renewal process and cross-border travel will need to be smoothed out.

In Shenzhen, for example, the Post spoke to officials at the Futian administration services centre – the only location in the city for Hong Kong visa renewals – who warned of a two-hour wait for self-service kiosks earlier this week.

In late 2022, retailers were already preparing for a gradual return of mainland Chinese customers. Italian luxury brand Brunello Cucinelli, for example, leased three floors at New World Tower in Central, according to real estate firm Cushman & Wakefield.

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High-street businesses are also playing a greater role in driving real estate demand, with Japanese drugstore giant Matsumoto Kiyoshi and athleisure brands snapping up physical retail space, a recent report from Cushman & Wakefield says.

This is symptomatic of wider shifts across Hong Kong’s luxury retail landscape, which have seen prime shopping districts undergo dramatic transformations as luxury brands have closed down stores.

In 2022, everything from private health clinics to carmakers snapped up retail space left vacant by luxury brands. In Causeway Bay, restaurants, supermarkets and cheap goods vendors now occupy spots previously leased by high-end fashion names.

Looking ahead, luxury brands are likely to concentrate on key retail districts and malls, Wouters says, rather than take risks by expanding their footprints. Established shopping meccas like Harbour City and K11 Musea are set to benefit.

In the long-term, there’s also the question of China’s Hainan island, which cemented itself as the country’s key domestic shopping hub during the pandemic.

Hainan isn’t expected to lose its shine: domestic travel continues to thrive, and offshore duty free sales rose over 20 per cent to US$380.7 million during the recent Lunar New Year holiday period, according to the Hainan Provincial Department of Commerce.

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The island province is also slated to become a fully designated duty-free zone by 2025, meaning brands and retailers can launch their own travel retail outposts without licensed operators.

But Hong Kong’s retailers can find comfort in Oliver Wymans’ data, which reveals that 75 per cent of respondents preferred the city’s shopping experience over Hainan’s, in spite of the latter’s pricing advantage and convenience.

“Hong Kong still has a big role to play,” Wouters says. “We think there’s a place for both Hong Kong and Hainan, and we think of the visitors as looking for something different.”

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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