(Nikkei) Hong Kong's retail sector has posted the worst annual sales figures in nearly two decades, but there are signs of recovery as more mainland Chinese tourists spend their holiday in the territory.
Retail sales in 2016 reached 436.6 billion Hong Kong dollars ($56.3 billion), down 8.1% from a year ago, marking the biggest drop since the Asian financial crisis hit the former British colony. Retail sales fell 17% in 1998.
However, monthly figures have improved despite the full-year slump, according to official data released on Friday. In December, retail sales fell for the 22nd month in a row to HK$42.4 billion, down 2.9% from a year ago. This was a contraction from a 5.5% fall in November.
The slump was led by a 25% sales decline in electrical goods and a 24% drop in the sale of consumer durable goods such as mobile handsets and laptops.
Sales of luxury goods including watches and jewelry swung back to positive territory for the first time since October 2014, edging up 2.3%. Festive sentiment in December also led to positive sales growth for supermarkets and items such as food, alcoholic drinks and tobacco, as well as medicines and cosmetics.
The government attributed the narrowing decline in sales to stronger local consumption and tourist traffic. Chinese tourist numbers rose in December after months of decline, led by a 9% jump in mainland arrivals during the four-day Christmas holiday. Overall tourist arrivals in 2016 were down 4.5%, however.
"The near-term outlook for retail sales business will still depend on whether the recent improvement in inbound tourism could gain more traction and the extent to which local consumer sentiment would be affected by various external uncertainties," said a government spokesperson.
Some luxury and upmarket retailers are yet to see a turnaround. Chow Sang Sang, a local rival of Chow Tai Fook Jewellery Group, issued a profit warning in late January that its full-year earnings for 2016 could plunge 30-40%.
Fashion retailer Bauhaus closed four shops in Hong Kong and Macau as same store sales fell 10% from a year ago in the last three months of 2016. Rival I.T also saw a 4.6% decline in same store sales in Hong Kong in the September-November period.
"The overall economic environment, including our sector, continued to be very challenging," said I.T's chairman Sham Kar-wai on Jan. 25, blaming the Hong Kong dollar's peg to a stronger U.S. dollar for encouraging overseas spending.
Regional malls located near the Chinese border have fared better. Official data showed that some 462,000 mainland tourists visited Hong Kong during the Chinese New Year holiday, up 2% on the year.
Of those regional malls, V City in Tuen Mun recorded sales of HK$190 million and drew 4 million shoppers from Jan. 1 to Jan. 27. "We've seen a better-than-expected Chinese New Year -- whether it's in terms of sales or foot traffic," said Evelyn Suen, assistant general manager of leasing at Sun Hung Kai Properties, which operates V City.
The mall's foot traffic on the eve of Chinese New Year on Jan. 27 grew 10% from a year ago. Dried seafood and health products were among the bestsellers at the mall with sales up by 20%, bringing average spending per customer to HK$3,000-5,000.
Industry observers expect rental growth at regional malls to outperform core tourist locations like Central and Tsim Sha Tsui. "We are slightly pessimistic on high streets rents in Central," where there are a heavier concentration of luxury retailers with slowing sales, said Joe Lin, executive director of retail services at property consultancy CBRE. However, he added that the rental correction in prime shopping districts would not exceed 5% in 2017.
"As most leases that were signed during the retail peak of 2014 will have expired by the middle of the year, rents are expected to stabilize from then on," he said.
Less optimistic is Hang Lung Properties, which owns a mixed portfolio of retail assets. Despite a 5% increase in the group's rental revenue in Hong Kong last year, Hang Lung's chairman Ronnie Chan Chi-chung warned of caution in the retail market. "I don't see a quick recovery soon," he said. "There is still room for [rental] growth but the question is how much."
Source: Nikkei by Jennifer Lo
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