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Hong Kong
By Mary Kavanagh
Retail sales in Hong Kong fell 4.1 percent year on year in May, marking the fourth consecutive month of decreasing consumer spending. Still, the drop was smaller than April’s 9.9 percent — the largest decrease in five years. Jewelry sales, which account for almost 25 percent of all retail spending in Hong Kong, continued to be hard hit, falling 24.5 percent in May compared to a year ago. Caroline Mak, chairwoman of the Hong Kong Retail Management Association (HKRMA), said the continuing decline could be attributed not only to 2013’s gold buying spree, which set a higher benchmark for comparison, but also to a continuation of the jewelry softening that started in 2012. Mak also expressed concern about the impact of the Occupy Central protest movement on retail sales, saying it is an unknown factor that can affect both Hong Kong consumers’ willingness to spend and Mainland shoppers’ enthusiasm for visiting Hong Kong, South China Morning Post reported. The association’s outlook for June was mixed, with many members expecting the double-digit drops to continue.
The Occupy Central civil disobedience movement was founded to seek universal suffrage for the 2017 Hong Kong chief executive election to give the public the right to nominate candidates and vote for the chief executive. He is currently chosen by a 1,200-member committee representing interests favorable to Beijing. The prodemocracy movement has attracted a lot of media attention, both positive and negative. Business people in the city are concerned about the effect a threatened “occupation of Central Hong Kong” — originally planned for July — will have on business if it paralyzes the financial district. HSBC, Hong Kong’s biggest bank, downgraded the city’s stock market prospects in early July, citing risks from the movement and Moody’s ratings agency also restated its negative outlook on the city’s banking system.
Chow Tai Fook (CTF) Jewellery Group’s first-quarter retail sales value and same-store sales volume dropped 32 percent, the company’s worst performance since its Initial Public Offering (IPO) in December 2011. For the three months that ended on June 30, sales in Hong Kong and Macau declined by 43 percent and those in China dropped 24 percent. Same-store sales dropped 40 percent in the second quarter, and 50 percent in Hong Kong and Macau. Kent Wong, CTF managing director, said he expected Mainland business to do better than Hong Kong in the coming 10 to 12 months. He added that the company would continue with its plan to open 200 new shops every year but would be more prudent in its planning for the Hong Kong and Macau markets. Luk Fook Group announced a 50 percent increase in profit, with revenue up 43 percent to $2.48 billion for the year that ended March 31, attributing the growth to 2013’s strong gold sales. April and May sales fell 56 percent year on year but that was within expectations because 2013 sales over that period increased by 96 percent compared with 2011, South China Morning Post reported. The company’s outlook on the Hong Kong market this year is very cautious, with plans to open one to three stores, most likely in the New Territories, an area frequented by Mainland visitors and away from the main downtown shopping areas where rents are very high.
Optimism prevails for a good second half of the year following the typically quiet summer season. “The overall mood is good although we are in the slow summer months,” said Dov Tannenbaum, partner at Leo Schachter Diamonds East Ltd. “Generally speaking, the markets in the West — the U.S. — and the East — China — are both doing well. Not booming, but definitely healthy demand. Hong Kong is a bit slower.”
Darshan Bhagat, chairman at China Diamond Corporation Ltd., also reported that business is doing well, in particular for round stones below 1 carat. He noted people are in a “summer holiday mood” and he was optimistic about the outlook for the rest of the year. “Business should be better from September onward in all areas,” he said. Bhagat warned, though, that the market for goods above 3 carats is very tough. He was concerned about what will happen if interest rates go up in the fourth quarter of 2014. “If the dealers and manufacturers don’t become aggressive in selling stones 3 carats and above, I think there will be panic in the coming year,” he said.
Expectations for the upcoming September Hong Kong Jewellery and Gem Fair were high following mixed reports on the June show. “September is very important to us. It is the biggest show of the year in the Far East and brings in many international buyers,” said Tannenbaum. He noted the June fair was “a good show for us. It has grown from being a small, minor show to a significant one. There was healthy demand from Chinese customers, but sales of larger stones — 3 carats and over — were very slow. According to Bhagat, “the September show is the benchmark for the fourth quarter and coming year for the diamond industry. Orders are coming in for the show, mostly for small goods below .50 points.”Article from the Rapaport Magazine - August 2014. To subscribe click here.
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