In the last month, the scene of tourists weaving on Canton Road in Hong Kong, where luxury shops gather, is no longer there.
There are no long queues in front of DIOR, GUCCI and CHANEL along the street. In the makeup area with the most crowded people in the high-end shopping mall Harbour City, the aisle that has always been crowded is rarely spacious. In Lane Crawford, only a few customers are scattered in the dense shelves.
Luxury shop assistants, who are usually very busy, are idle. Their eyes follow every passer-by, and after the guests enter the store, they follow closely and introduce each product.
Cabinets and sisters in the makeup area of Harbour City usually only care about getting goods and quotations, but now they are free to attract guests. The cabinet brother of Hermes perfume leaned hard and stuffed the test paper into the hands of passers-by
"There have been fewer guests recently, because there are fewer tourists." Coach clerk of Guangdong Road said to the interface fashion. The clerk of SAINT LAURENT in Harbour City said: "The business is average recently, so the goods will be all."
In contrast, the stores of popular brands such as LV, GUCCI and DIOR are still crowded, and the clerk said that business has been good. "But there was a long queue before, and now there is no need to queue up." GUCCI clerk said.
A pair of tourists’ mother and daughter told the interface fashion that they couldn’t get thoughtful service when shopping in Hong Kong in the past, and too many people also affected the experience. Now they can choose slowly. But for safety reasons, the original five-day tour has been compressed to three days.
The decrease in the number of tourists on Canton Road has something to do with the demonstrations that have lasted for more than two months in Hong Kong.
Yao Sirong, a member of the tourism industry of the Hong Kong Legislative Council, once said that the number of inbound tourists in Hong Kong changed from an increase in June to a decline in July due to demonstrations.
The situation in August was even more severe. The number of inbound tourists in Hong Kong dropped by 30% in the first two weeks of that month, and further dropped by 40% in the third week. This directly led to the price and occupancy rate of hotels in Hong Kong diving again and again. Last August, the occupancy rate was still 90%, and this year it fell to 50%. Many hotels had to cut their prices by half.
As of mid-August, 28 countries have issued different levels of Hong Kong tourism risk warnings. Under the heavy blow of tourism, the retail industry is also chilling.
Luxury brands in Hong Kong have been negatively affected since the beginning of the incident, and brands such as Tiffany and Hermes even went out of business for a short time. These factors have been written into the recent financial reports of major luxury goods companies.
Tiffany’s 2019 semi-annual report mentioned that in the second quarter, sales in mainland China rose by 25% year-on-year, while sales in Hong Kong recorded a double-digit decline. During this period, Hong Kong stores were closed for six days.
"(The situation in Hong Kong) has certainly done great harm to our sales. Compared with last year, our sales in Hong Kong have dropped sharply," Alessandro Bogliolo, CEO of Tiffany, said in an interview with Women’s Daily. "Except for the six days (when the store was closed), you can imagine that the other time in the second quarter is not the best time for shopping."
Mark Erceg, chief financial officer of Tiffany, warned in a conference call with analysts that if the situation in Hong Kong continues to deteriorate, the annual sales and earnings per share will even be lower than the company’s minimum expectations.
Prada still maintained a positive growth trend in the mainland market in the first half of 2019, but the overall revenue of Greater China fell by 5%, which was said in the financial report to be affected by social problems in Hong Kong.
The growth rate of kering, the parent company of GUCCI, declined in Hong Kong in the first half of the year, and the performance of Macau market also declined. According to the financial report of the group, there are two reasons for the decline in growth rate in these areas. Previously, the higher growth rate led to a high comparative base, and more importantly, the demonstrations in Hong Kong at the end of the second quarter affected business activities.
LVMH and Hermes seem to be less affected.
LVMH generally mentioned in the financial report for the first half of 2019 that DFS, a global duty-free shop under the Group, grew strongly in the Hong Kong and Macau markets, but its growth rate declined in recent months.
Hermes said that although some Hong Kong stores have experienced short-term closures, the solid customer base and huge market demand in the local market offset the losses caused by the short-term closures.
However, the demonstrations in Hong Kong became more intensive in August and September, and the normal operation of the Hong Kong International Airport was affected several times. Tourists became more cautious about traveling to Hong Kong, and the sales transcripts of luxury brands in Hong Kong in the third quarter of this year may be even worse.
Considering the current situation in Hong Kong, CHANEL announced on September 6th that it would postpone the launch of the 2019/20 early spring holiday series scheduled for November in Hong Kong.
As a barometer of luxury retail in Hong Kong, the cold and cheerless atmosphere of Guangdong Road and Harbour City once again sounded the alarm that Hong Kong had lost its shopping paradise.
In the first half of 2019, the retail sales of shopping malls in Harbour City fell by 1% to HK$ 18.497 billion. The operating profit of Times Square, another high-end shopping mall under the parent company Wharf Real Estate, also declined. As a result, the overall performance of Wharf Property was very reluctant, and its net profit decreased by 31% to HK$ 6.989 billion. The financial report said: "Demand and market conditions have weakened significantly since the beginning of the year, and the situation has become more and more severe."
Judging from the overall situation of the Hong Kong market, the retail sales of luxury goods also declined the most.
According to the data of Hong Kong Retail Management Association, the total retail sales value of Hong Kong in June fell by 6.7% year-on-year to 35.2 billion yuan, which is the fifth consecutive month of decline. Among them, the retail sales of jewelry, watches and luxury goods fell more than other categories, reaching 17.1%.
This means that it is more and more difficult for luxury goods to grow in Hong Kong.
Hong Kong’s luxury retail industry once relied on the rise of mainland tourists.
Take Harbour City, the largest high-end shopping mall in Hong Kong and the most profitable shopping mall in Asia, for example. In the ten years since 2007, thanks to the influx of mainland tourists, its sales grew at a compound annual growth rate of more than 10%, and in 2018 it reached an astonishing 24%. In 2018, the sales of Harbour City exceeded HK$ 37 billion, with an average of HK$ 100 million per day.
Looking back, the strategic position of this city in Asia has been prominent since the beginning of the 21st century.
In July 2003, the first phase of free travel for mainland residents in Hong Kong was implemented. Prior to this, there were only about 7 million tourists visiting Hong Kong last year. After the popularization of the free travel policy, this number jumped to about 45 million in ten years. During the same period, retail sales in Hong Kong soared by 184% to over HK$ 162 billion.
At that time, most luxury brands had not been widely and deeply laid out in mainland China. Hong Kong, which is tax-free, close to home, and has many famous brands, has become the best choice for mainland tourists to travel abroad and buy overseas brands in those years.
CB Richard Ellis, a commercial real estate information provider, once pointed out in "The Process of Retail Globalization" published in 2012 that Hong Kong is the hottest retail market and luxury market in the world, and its new brand presence ranks first in the world, attracting 86% of the high-end retailers interviewed.
Lian Zhihao, then a senior director of CB Richard Ellis’ store service department, said in the report: "Hong Kong’s ranking reflects its importance to luxury brands, largely because mainland visitors to Hong Kong have a continuous demand for high-end goods, and they hope to enjoy the price difference when buying luxury goods in the Hong Kong market."
Luxury brands therefore pay special attention to Hong Kong’s data in their financial reports.
Take LVMH Group as an example. In its 2015 financial report, the Hong Kong dollar was listed separately in the part showing the sales situation according to the currency proportion. In that year, sales in Hong Kong alone reached 7% of LVMH’s global sales.
When the performance of Hong Kong declines, luxury goods groups often take it out for evaluation. For example, Richemont Group said in its 2015 financial report that there were no signs of recovery in Hong Kong and Macao in the first month of the new fiscal year. Based on this, it is predicted that sales in the Asia-Pacific region may continue to be sluggish; LVMH Group also pointed out in its 2018 financial report that although the sales of Sephora’s selected retail department increased by 6% to 13.646 billion euros during the period, it could record a 12% increase if DFS’s one-time loss in terminating the franchise of Hong Kong Airport was not included.
The impact of Hong Kong’s performance on performance can be seen. Even now, going to Hong Kong is no longer the only option for mainland tourists to buy luxury goods.
PricewaterhouseCoopers pointed out at the beginning of this year that although large-scale infrastructure projects such as the Hong Kong-Zhuhai-Macao Bridge and the Guangzhou-Shenzhen-Hong Kong High-speed Railway have helped to drive the number of mainland tourists, with the gradual change of consumption patterns of mainland tourists, the increase in the number of tourists has limited impact on Hong Kong’s total retail sales.
At the same time, the change of consumption pattern has promoted the return of luxury consumption in the mainland.
From 2015 to 2018, the proportion of luxury consumption in China increased from 23% to 27%, and this trend may continue with the blessing of relevant policies.
For example, in 2018, the government lowered import tariffs, and strengthened control over the grey markets such as Daigou and Wechat business, and brands such as Louis Vuitton, Hermes and Burberry all lowered their product prices in China accordingly. On January 1, 2019, the Electronic Commerce Law, Daigou and Wechat business began to walk on thin ice.
On the other hand, it is the rise of luxury online channels. According to Bain data, online sales of luxury goods increased by 27% in 2018, accounting for 10% of total omni-channel sales.
With luxury brands actively laying online channels, the strategy of adjusting prices and narrowing price differences in the global market is also advancing simultaneously. This has made China consumers more willing to buy luxury goods in the mainland.
Kobayashi still remembers that he bought a scarf in a Burberry flagship store in Hong Kong last year. Later, it was discovered that the price converted into RMB was even more expensive than that of Burberry Tmall’s store in 200 yuan. This is the first time that she feels that the price advantage of Hong Kong is no longer there.
Hong Kong’s own factors have also led to the decline of its position in the luxury market.
High rents may "dissuade" more and more brands. Prada plans to close its store in Plaza 2000, Causeway Bay, Hong Kong in 2020. This store is the sixth and largest store opened by Prada in Hong Kong. The monthly rent reaches an astonishing HK$ 9 million, but the passenger flow can’t support this expensive price.
This may also prevent new overseas brands from entering Hong Kong and switching to the mainland market. Helen Mak, senior director and head of retail services of Knight Frank, a real estate consultancy, said that more and more overseas brands are coming to inquire about the retail situation in Hong Kong and hope that this trend will last for a long time. "Brands need more time to examine their expansion plans in the Hong Kong market."
In addition, with Shanghai’s avant-garde design strength and fashion market position becoming more and more prominent, the title of Hong Kong, once the fashion capital of Asia, began to fade. Brands are more willing to put the key channels and marketing layout on the "new portals" in the mainland such as Shanghai and Beijing, and there are fewer opportunities in Hong Kong.
However, at present, Hong Kong still has many irreplaceable market advantages.
All along, Hong Kong’s internationalization and management level make it regarded as the strategic center of China fashion market in the traditional sense. Today, it is still the preferred base for many fashion brands and groups in Greater China.
Having sufficient international brands has also become one of the important reasons why Hong Kong attracts cross-border e-commerce. In addition, as an international free trade port, Hong Kong has higher cost and flexibility in taxation and warehousing. These unique advantages will attract more cross-border e-commerce traffic and build a higher reputation for Hong Kong, which will become another way out for the future transformation of Hong Kong’s retail industry.
More importantly, Hong Kong’s position in the international financial community is still solid and cannot be ignored by the capital market.
Therefore, many luxury brands are willing to continue to invest in the Hong Kong market for a long time and remain optimistic about the prospects here.
Axel Dumas, CEO of Hermes, once said: "We have been in Hong Kong for a long time and are optimistic about the Hong Kong market."
Although Tiffany was greatly affected by the negative impact in the second quarter, it steadily implemented the next planning. We are going to transform the mini-shop in Hong Kong Airport into a larger duty-free shop, and open a flagship store with Tiffany Blue Box Café on Beijing Road.
For DFS under LVMH Group, Hong Kong has always been the main market. In the second half of this year, after the renovation of T Gallerias store in Hong Kong, it is expected to bring greater benefits to DFS, and a new store in Mong Kok is also under preparation. Sephora, a cosmetics retailer under the group, will also settle in Hong Kong this year.
The Italian brand Golden Goose Deluxe Brand (hereinafter referred to as Golden Goose) is even more ambitious for the Hong Kong market. In early September, it opened a customized laboratory concept store in K11 MUSEA, a new project of K11 Group in Tsim Sha Tsui, and plans to open two more stores in Hong Kong this year.
Silvio Campara, CEO of Golden Goose, said in an interview with Women’s Daily: "I can’t tell you that [Hong Kong stores] are doing well now, but the slowdown in store sales will only last for a short time. Trust these consumers in this city, keep the stores open and keep the business going. You must be optimistic. "
Only after this ups and downs, the retail industry in Hong Kong, including luxury goods, needs to realize that with the changes in all walks of life and different market conditions, the global market will usher in a multi-center era, and no one’s position will remain unchanged. This is also an opportunity to urge the reform and upgrading of Hong Kong’s retail industry.
Take London, which is similar to Hong Kong’s retail industry, as an example. Under the influence of the Brexit issue and the economic recession, the vacancy rate of shops in the UK has been rising every quarter since January 2018.
The busiest shopping street in Europe — — As a result, Oxford Street in London is in a difficult period. The once crowded House of Fraser and Debenhams department stores are sparsely populated, while H&M and Zara begin to scale down and renovate. Throughout August, only Selfridges’ performance continued to grow.
Online shopping is the main reason for the impact on the traditional British retail industry, which urges the property owners in Oxford Street to transform the shopping environment and add more leisure and catering brands.