Rapaport Magazine

Hong Kong

By Mary Kavanagh
Protests Cause Downslide in Retail

Hong Kong has been in the international spotlight since September 28 when the Occupy Central protests officially started. The civil disobedience movement called on thousands of people to block roads and disrupt Hong Kong’s financial district in a call for democracy for the city.
   The response from Hong Kongers to the call to action has been unprecedented, with hundreds of thousands crowding into the financial district and other key business areas to demand the right to democratically elect Hong Kong’s chief executive in the next general elections in 2017. Although the protests have generally been peaceful, business in the city has been impacted — for some retailers more than others — and movement in the central shopping area restricted.

Golden Week Sales Hammered
   Mainland China’s National Day Golden Week holiday kicked off October 1, shortly after the protests got into full swing. As a result, retail sales during this year’s holiday were significantly below expectations, with members of the Hong Kong Retail Management Association (HKRMA) reporting a drop of 15 percent to 50 percent-plus compared with the same period a year earlier.
   Watch and jewelry retailers registered the largest drop of the product categories, with some smaller members reporting decreases as high as 80 percent. Major Hong Kong retail chains reported declines in Golden Week holiday sales of as much as 50 percent. “We expect the negative impact of the recent social activities to be fully felt in the coming months as both local consumption and tourist spending will be affected,” HKRMA said in a statement.
   Although total retail sales in August increased for the first time in seven months — by 3.4 percent in value and 2.8 percent in volume — sales of jewelry, watches and clocks and valuable gifts was still down by 6.1 percent compared to a year earlier. It was the seventh consecutive monthly decline for jewelry sales in the city. Goldman Sachs Group Inc. lowered its forecast for 2014 growth to 2.1 percent from 2.3 percent on October 10, announcing that it sees the “main growth impact of the recent large-scale pro-democracy protest in Hong Kong working through lower tourist spending.”

Impacted Areas
   Chow Sang Sang, one of the large jewelry retail chains in Hong Kong, reported that its sales were down 6 percent to 8 percent during Golden Week. The company closed some shops in the areas impacted by the protests, but sales at the retailer’s other locations in the city proceeded as usual.
   Vincent Yiu, director at Brilliant Trading Company (BTC), a diamond manufacturer, wholesaler and retailer, said the traffic problems caused by Occupy Central have been a “big headache.” Some roads in prime shopping districts have been closed and public transportation has been disrupted, rerouted or in some cases, stopped — it has all had an impact on sales. However, he also noted that buyers from Mainland China, while they did not go to the areas impacted by the protests, switched to other locations where the major retail chains also have a large presence.
   “There are more than 30 jewelry shops on Nathan Road catering to Mainland tourists,” Yiu said. “Most independent jewelers won’t buy stock until Occupy Central is over unless it is for memo work. Because who knows what is next… if the government and students don’t reach an agreement, maybe the roadblocks will last forever.”
   Yiu reported that business has generally been quiet since the September international jewelry show because local dealers stocked up at the fair. “And as always, retailers and wholesalers are watching and waiting to see what will happen with prices after the show — if they will go up or down. The show was good in terms of sales,” he said, adding that prices were not so good.

Customers Switch Stores
   Luk Fook Holdings (International) Ltd. reported same-store sales growth during Golden Week was up by 3 percent in the Hong Kong and Macau market and 28 percent in Mainland China. The company attributed the slight increase in growth to a relatively low international gold price, which led to increased demand for gold products. “Although the Occupy Central protest in Hong Kong caused a disruption of normal operations in some shops in certain districts, the adverse impact was mitigated by a substantial growth of sales at shops in other districts because of the switch in customers’ shopping locations,” the company said in a statement.
   For the second quarter of its financial year — covering the period from July 1 to September 30, 2014 — Luk Fook reported a drop of 21 percent in sales compared to an increase of 37 percent in the same quarter in 2013. Still, the numbers were an improvement over the 54 percent drop in the first quarter of this year that ended on June 30, although that was largely seen as a result of comparisons to the unusually high gold rush sales of the previous year.

Article from the Rapaport Magazine - November 2014. To subscribe click here.

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