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Hong Kong
By Mary Kavanagh
Hong Kong retailers appear to have lost out to Macau casinos during this year’s Labor Day Golden Week holiday. The number of Mainland tourists who visited the city over the three days of the holiday that started May 1 dropped by 1.7 percent this year to 388,070. That’s the first time there has been a decrease in visitors during this holiday period since 2003, when the individual visit scheme was introduced that allows Mainlanders to visit Hong Kong independently without joining tour groups. The number of Mainland holiday celebrants crossing the border on the first day of the holiday dropped 12 percent from 2013, according to data from the Immigration Department. Jewelry stores reported fewer customers and lower sales than previous years. Kenneth Chan, director of Edelweiss Jewellery Company, a Hong Kong manufacturer and wholesaler of diamond goods, said there was “less customer traffic compared with Golden Week last year.” The Luk Fook Group, one of the leading jewelry retailers in Hong Kong and Mainland China, said its sales could be down by 50 percent for the holiday but that it’s difficult to compare 2014 sales performance with 2013 because of the gold rush in 2013, whereas the market has now stabilized. Emperor Watch & Jewellery Ltd., a leading retailer of luxury watches and fine jewelry, reported that its sales during Golden Week this year were similar to that of an ordinary weekend. Yet Emperor’s Chairwoman Cindy Yeung told the South China Morning Post that there is still a good incentive for Mainlanders to buy watches and jewelry in Hong Kong because of the price difference of at least 20 percent.
Chan attributed the drop in visitors and sales in part to China’s anti-extravagance rules that have discouraged luxury consumption in Hong Kong. “This also affects the mood of the diamond market,” he said. Economic fluctuations on the Mainland have also no doubt played a role, as have cultural conflicts between locals and Mainland visitors. In recent months, tensions between Hong Kong residents and Mainland visitors have brought local protesters to the streets urging curbs on visitor numbers. In April, the situation was further exacerbated after a Mainland toddler urinated on a public street in the busy commercial center of Mongkok. The videotaped incident — and the subsequent arrest of the parents — sparked outrage on social media in China and reignited calls for Mainlanders to stop visiting Hong Kong. Vincent Fang Kang, a lawmaker representing the city’s retail industry, said such protests, which irritate the tourists, contributed to the drop in visitors during the Labor Day holiday. He has supported calls for a restriction on Mainland visitors that would limit the number of entries to Hong Kong to one per day instead of allowing them multiple entries on the same day. Hong Kong residents have complained about Mainlanders making several trips over the border daily to stock up on goods such as infant formula, which some then resell across the border. However, Travel Industry Council Chairman Michael Wu Siu-ieng said that changing the entry regulations for permanent Shenzhen residents could cause more resentment and may stop some Mainland visitors — a very important target audience for diamond as well as other retailers — from coming at all.
Retail sales in March declined by 1.3 percent year-on-year. That represents the first decline since August 2009, excluding the decline in February 2014 when sales in the first two months of the year were combined to remove the impact of Chinese New Year celebrations. According to Fitch Ratings, the retail decline was driven by items commonly purchased by Mainland shoppers, such as electrical goods and luxury products. Fitch doesn’t expect sales in the second half of the year to be much better when compared year on year because sales in 2013 were boosted by a gold-buying frenzy due to the drop in gold prices. Lowered spending by Mainland tourists has been the main contributor to the current fall in retail sales, according to Fitch, compared to 2009, when the decline was driven by a contraction in domestic consumption. The concern, said Fitch, is that if retail sales continue to drop for a considerable amount of time, domestic consumption could be dampened because the unemployment rate may rise.
Edelweiss’ main market is the U.S., where the company has seen a steady and strong demand for small diamonds, 10 points and below. “Diamonds and precious stones that cost less than $1,000 sell quickly, but customers are more cautious when it comes to items in the $20,000-and-above price range,” said Chan, who was busy preparing new sample lines for the JCK show in Vegas in June. “I have a good feeling that the American business will pick up in the second half of the year,” he said.Article from the Rapaport Magazine - June 2014. To subscribe click here.
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