Rapaport Magazine

Hong Kong

By Mary Kavanagh
Retail Challenge by Tourism Slowdown

The jewelry industry in Hong Kong continues to be challenged as retail sales fell for the twelfth consecutive month in February with little hope of a turnaround anytime soon. The Lunar New Year holiday in early February, typically a busy time for retailers, didn’t help and overall sales dropped by 20.6 percent in value and 19.5 in volume compared to the same period in 2015. That’s a 13.6 percent drop for the first two months of the year compared to 2015 and the biggest decline since 1999. Thomson Cheng, chairman of the Hong Kong Retail Management Association (HKRMA), acknowledged that the numbers were worse than industry expectations and predicted equally grim figures for March. Most of HKRMA’s members foresee this negative trend continuing and expect “a low double-digit drop in March.” Sales in the jewelry, watches and valuable gifts category declined 32.5 percent in value and 27.3 percent in volume — a drop of 24.2 percent in the first two months of 2016.
   The government attributed the decline in retail sales to the ongoing slowdown in inbound tourism and said the asset market consolidation might also have contributed to weak local consumption. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects,” a spokesperson for the government said. Tourism numbers fell 18 percent in the first two months of this year compared to the same period in 2015, the Tourism Board reported.

Grim outlook
   Analysts predicted the worst is yet to come as retailers across the city reported declining sales. Chow Tai Fook (CTF) announced a drop of 26 percent in same-store sales for the three months that ended on March 31, 2016, the fourth quarter of its fiscal year, citing its unaudited key operational data. Sales were down 25 percent in Mainland China and 27 percent in Hong Kong and Macau — compared to 6 percent and 23 percent respectively last quarter. The company attributed the poor performance on the Mainland to “an outflow of holiday consumption as a result of the increase in Mainland China’s outbound travel and the weakening of consumer sentiment on luxury goods and the slowdown of economic growth” and in Hong Kong and Macau, to the continuing decline in visitors from Mainland China and weak local consumer sentiment.
   Luk Fook, another of the city’s large jewelry retail chains, also reported a sharp decline in sales for the three months that ended on March 31. Same-store sales dropped 27 percent overall with gold jewelry down 28 percent year-on-year and gem-set jewelry showing a 25 percent decline. “We do not expect a quick rebound in the jewelry market,” an analyst from Jeffries, a global investment bank, said. Retailers and analysts were also pessimistic about the three-day holiday on the Mainland starting on May1, saying they expected fewer visitors to Hong Kong than in previous years. An analyst from CLSA, an Asian brokerage and investment group, said the “seasonal effect” on Hong Kong retail sales resulting from Mainland holidays had lessened in recent years.

Art-inspired Jewelry
   Demand for unique, one-of-a-kind goods at the high end of the market appears to have remained steady although the broader market has suffered. Even though business has been tough recently at CTF’s retail stores, the company has a thriving business for high-end jewelry among its 1.5 million VIP customers worldwide. CTF recently unveiled its latest annual High Jewelry collection at a special invitation-only event in Hong Kong targeted at a subset of this select group. “‘Le Labyrinthe Artistique’ is our first high jewelry collection inspired by the arts. It’s a celebration of some of the most significant abstract artists in history,” said Adrian Cheng, CTF executive director and founder of K11 contemporary art malls in Hong Kong and Shanghai. “We have distilled the very essence of these artists’ works and given them new form through our unique interpretation and exceptional craftsmanship,” he added. “Our VIPs are calling us as they are very eager to be part of this event and to be invited to the auction in November.”
   This is the fifth collection and comprises 15 unique jewelry sets created by CTF and the 350 VIPs the company flew in from around the world for the preview were not disappointed. They had the opportunity to see the works of art at close range as models paraded the venue so everyone could have a bird’s-eye view. The collection will now go on a roadshow in China so more VIPs can see it before it goes under the hammer. CTF also created an additional 1,000 items of jewelry for sale inspired by this collection, which attracted a lot of attention following the main event. The market for high-end pieces appears to be alive and kicking in spite of the general gloom in the market.

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

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