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Hong Kong
By Mary Kavanagh
Hong Kong experienced its biggest drop in retail sales in five years during April, its third consecutive monthly decline. Consumption fell 9.8 percent year-on-year to approximately $5 billion in value, down 9.5 percent in volume. Jewelry sales were hit particularly hard, dropping by almost 40 percent. Caroline Mak, chairwoman of the Hong Kong Retail Management Association (HKRMA), attributed the drop to a change in consumer habits, less consumption by Hong Kongers and the “gold rush” that started in April 2013, which resulted in a high base for year-on-year comparisons.
Mak also predicted that May’s figures would be equally bleak and she was less than optimistic about the outlook for the second half of 2014, reporting it “is full of uncertainties and remains challenging due to the slowdown in the Mainland tourist’s consumption level and increasing operating costs.” As a result, the association lowered its initial growth forecast of 9 percent to 12 percent for 2014 to just 5 percent but Mak warned that even that revised number was “optimistic.”
The large jewelry retail chains in the city experienced a dramatic drop in share price from January to June 5, according to Bloomberg. Luk Fook’s share price dropped 32.9 percent over this time period, Chow Sang Sang’s decreased 12.9 percent, Chow Tai Fook’s was down 10.2 percent and Emperor Watch & Jewellery declined by 6.7 percent.
“For the past four to five months, business has been extremely slow,” said Ephraim Zion, managing director of Dehres Ltd., noting that although business typically slows coming into the summer months, this year is slower than usual. “Traffic from China is down,” he said, one of the factors negatively impacting sales. Another factor is the political unrest in the Middle East, specifically Iraq and Syria, and other parts of the world, which has also contributed to “a lack of enthusiasm to buy.” Yet Zion was optimistic that the market would rebound. “We are going through a rough patch now, but after summer, things will improve. I think there will be a rebound and those who haven’t bought for a long time will buy. It will be better.”
Jewelry retailer Chow Tai Fook (CTF) announced its annual results in mid-June, reporting a 32 percent increase in profit. Net profit for the year that ended on March 31, 2014, was $942 million, up from approximately $710 million a year earlier, largely boosted by the gold rush that started in April 2013. Annual revenue grew 34.8 percent to almost $10 billion and same store sales growth was up 18.6 percent. The company was cautious in its outlook for the current financial year, expecting more modest growth against the backdrop of the Mainland’s anticorruption campaign and the slowing economy, according to CTF Chairman Henry Cheng.
Sales in April dropped 40 percent year-on-year, but CTF Managing Director Kent Wong said this was in line with expectations because of the high base effect of the gold rush. He was confident that growth would become positive again in the second half of the year because the gold rush has started to subside. CTF added a net 241 outlets over the past year, mainly in third-tier Mainland cities, and plans to add 200 new stores in China this year, an indication of the importance of that market to sales.
A day after announcing its annual results, CTF reported that it has entered into a conditional acquisition agreement to purchase Hearts on Fire, a U.S.-based luxury branded diamond company offering premium bridal and fashion jewelry products, for $150 million. “The proposed acquisition is a strategic move to complement our product portfolio with an exclusive premium diamond jewelry line and to raise our profile as world-class diamond experts in the jewelry industry,” CTF Chairman Cheng said in a company statement. It is expected that the Hearts on Fire products will be introduced to the Hong Kong, Macau and Mainland China markets through CTF’s extensive retail network.
Attendees at the June Hong Kong Jewellery & Gem Fair reported more exhibitors and more space but fewer buyers and less demand than the June 2013 show. Suppliers said they faced price resistance from buyers, who were looking for bargains and displayed no urgency to buy. Sellers were unwilling to lower prices because their profit margins have been squeezed by higher rough prices. Diamonds above 3 carats were a rare bright spot at the show, with good demand.
Exhibitors reportedly totaled 1,892, representing more than 35 countries and regions, a 3 percent increase from 2013. This year’s fair was bigger than ever, with a record 230,000 square feet of additional exhibition space.
The Diamond Pavilion is “one of the biggest diamond showcases of its kind at any other fair worldwide,” said Celine Lau, director of jewelry fairs, UBM Asia, who noted that 450 diamantaires exhibited there. UBM brought a delegation of approximately 300 qualified buyers from Mainland China to the fair, which Lau said “confirms that Hong Kong remains the key international marketplace for Mainland buyers.”
Article from the Rapaport Magazine - July 2014. To subscribe click here.
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