Rapaport Magazine

Hong Kong

By Mary Kavanagh
Chinese New Year Period Challenging

Hong Kongers were told to embrace the “good omens” in the Year of the Monkey during a New Year ritual at Che Kung Temple where a lucky stick bearing the number 72 was drawn. “The stick tells us that Hong Kong has to stay united and harmonious,” said Kenneth Lau Ip-keung, chairman of Heung Yee Kuk, a government advisory body, who drew the stick. According to the annual ritual, the coming 12 months will bring luck for Hong Kong. This positive message came only hours after the city saw its most violent clashes between police and protesters since the Occupy Central movement in fall 2014. The riots started in the densely populated district of Mong Kok when efforts by food and hygiene officials to clear the area of illegal food stalls spiraled out of control leaving approximately 130 people injured, including 90 police officers. Those involved in the rioting have since come under attack from both Hong Kong and Chinese government officials and investigations are ongoing. There were no further such incidents over the holiday period.

Sales, Tourism, Stocks Fall
   In the run-up to the Chinese New Year, many in the industry forecast a challenging time for business over the holiday period, including Chow Tai Fook Jewellery Group (CTF), the world’s largest listed jewelry chain. CTF reported a drop in sales during the holiday period of 29 percent, with sales value down 30 percent on the Mainland and 23 percent in Hong Kong and Macau. It attributed the decline to the lower numbers of visitors from the Mainland. Tse Sui Luen Jewellery (International) Ltd. (TSL) said they expected flat sales during both the New Year holidays and Valentine’s Day compared with the same period in 2015, the Hong Kong Economic Journal reported. TSL’s chief strategy officer and chief financial officer, Estella Ng Yi-kum, said the city’s retail prospects are likely to remain tough for the next 12 to 18 months. The Hong Kong Retail Management Association (HKRMA) reported that most of its member companies anticipated a single-digit drop in sales over the holiday period compared to the same time last year. The timing of Valentine’s Day, falling on the first Sunday after Chinese New Year, was not optimal for sales and florists around the city complained about missing out on the office business. The Hong Kong Tourism Board reported the number of visitors from Mainland China over the Lunar New Year period dropped 12 percent and it predicts that the overall number of tourists this year will fall 3.2 percent compared to full year 2015 and that average spending will drop 4 percent per capita.
   Darshan Patel, marketing director at China Diamond Corp Ltd., noted the drop in numbers of tourists from Mainland China and the fact that those who came spent less. “Both the retail and wholesale sides of the business were slow over Chinese New Year,” he said, adding that he didn’t see the market picking up in the next six months. The “good omens” were not in evidence on the stock market as the Hang Seng Index slumped 3.9 percent at the close after markets reopened following a three-day trading closure over the holiday. Retail jewelry stores were impacted, with Chow Sang Sang dropping .9 percent and Luk Fook Holdings Ltd. declining 4.7 percent.

Niche Jewelers
   Yet it’s not all doom and gloom. Some jewelers seem to be more resistant to the challenging retail environment. These tend to be niche operators who offer a customized service, such as Ryder Diamonds, a bespoke, appointment-only firm that specializes in tailor-made wedding and engagement rings from design through production. “Most of our clients come to us for an emotional reason, such as to buy an engagement ring or jewelry to celebrate another special occasion, so our business hasn’t been affected so much by the economic climate,” said company founder, Sally Ryder, whose clients are predominantly expatriates in Hong Kong and overseas. The wedding market is still robust according to Ryder, who is expanding her business. “We’ve seen consistent growth. One trend I’ve noticed is that we are selling larger and more expensive stones,” she added, which, she said, might have something to do with the fact that diamond prices have come down and customers see the opportunity to buy bigger stones. “It’s a wonderful time for consumers to be buying diamonds,” she said, noting inventories were good so there were no issues with sourcing large stones and that prices were favorable.

Slump in Retail Sales Continues
   In 2015, total retail sales in Hong Kong declined in value for the second year running. The drop of 3.7 percent was the worst annual decline since 2002, when sales fell 4.1 percent. Sales volume fell .3 percent. Retail sales in December dropped by 8.5 percent in value, the biggest percentage decline since January 2015. Sales volume fell by 6.1 compared to the same period in 2014. The greatest decline in sales, yet again, was in the jewelry, watches and clocks and valuable gifts category, which fell by 17 percent in value and 10.8 percent in volume. The government attributed the decline to the continued slowdown in inbound tourism and the uncertain economic outlook. The Hong Kong dollar has also strengthened against the yuan, making the city a more expensive shopping destination for Mainlanders.

Article from the Rapaport Magazine - March 2016. To subscribe click here.

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