Rapaport Magazine

Hong Kong

By Mary Kavanagh
Challenging Times

It’s been a challenging year to date for the diamond industry in Hong Kong, Macau and Mainland China and expectations for a recovery in the second half are low. “Hong Kong is challenged. Market conditions are tough and have negatively affected local customers’ spending sentiment,” said Kent Wong, managing director, Chow Tai Fook (CTF), at the company’s recent annual results announcement for the financial year that ended on March 31, 2016. “We expect to see an ongoing low single-digit decline in the number of visitors from Mainland China and, more importantly, these tourists are spending less,” he added.
   CTF announced a 12 percent decline in revenue year on year and a 46.1 percent decline in profit attributable to shareholders. Same-store sales of jewelry declined by 21.7 percent in Hong Kong and Macau and 10.3 percent in Mainland China. Company Chairman, Dr. Henry Cheng, reinforced the tough market conditions. “Financial year 2016 was a year filled with challenges and uncertainties amid a volatile macroeconomic environment in Greater China,” he said.

All in The Same Boat
   The other large retail chains in the city are also struggling. Luk Fook Holdings Limited issued a profit warning to investors that its annual profit for the financial year that ended March 31, 2016, is expected to decline by 35 percent to 45 percent compared to the previous year. They attributed the decline to “weakening of Mainland tourist spending due to the strong Hong Kong dollar/weak Renminbi, the economic slowdown in Mainland China, the adjustment to the policy of Individual Visit Scheme and the increase in popularity of other tourist destinations.”
   Vincent Chow, chairman of jewelry wholesaler and retailer Chow Sang Sang Group, reported that local retail stores’ turnover in the first five months of this year had recorded a double-digit decline compared to 2015.

New Strategies
   Retailers are generally more optimistic about the prospects in Mainland China than in Hong Kong. CTF reported that it is planning to close seven to eight retail outlets in Hong Kong in 2017. And Chow Sang Sang said it was also planning to reduce the number of stores in the tourist areas in Hong Kong by two to three in the second half of 2016.
   Yet CTF will continue to open new stores in China. “Our approach on the Mainland is different as it’s such a huge country,” Wong said. “Even though it is challenging, we will still have the opportunity to improve sales by opening new stores — about 16 net, the same as this year,” he added, noting they will be more selective and targeted in their approach in order to enhance the CTF brand image and customer experience. CTF also plans to expand its footprint in overseas markets to tap into the booming segment of Chinese tourists traveling abroad. Chow Sang Sang also plans to open more stores in China.
   CTF also remains committed to expanding Hearts On Fire that it acquired in 2014 in spite of the challenging market conditions. “Hearts On Fire is a long-term investment,” Wong said. The company has added additional points of sale, primarily in China, with some in Hong Kong and Macau, as well as a presence in 12 Saks Fifth Avenue stores in the U.S. and Canada. It has also launched its first global marketing campaign and started a collaboration with British fine-jewelry designer, Stephen Webster.

Fewer Tourists
   Overall retail sales in the city declined for the fourteenth consecutive month in April, dropping 7.5 percent in value and 7.6 percent in volume. Sales of jewelry, watches and valuable gifts dropped by 16.6 percent in value and 14.8 percent in volume. Thomson Cheng, chairman of the Hong Kong Retail Management Association (HKRMA), expects an 8 percent fall in the full-year retail sales due to the “persisting weakness in tourist numbers and local consumption.” Even though the decline in the overall number of visitors to the city was smaller in April than in March — 2.1 percent compared to 4.3 percent — according to numbers from the Hong Kong Tourism Board, Cheng was disappointed with these numbers. The decline in visitors was smaller than the decline in retail sales, which indicates that tourists are spending less.
   The overall number of visitors from the Mainland, who account for roughly 80 percent of the city’s total arrivals, fell 4 percent in April, a less steep decline than the 6.9 percent drop in March. Yet the Tourism Board remains “cautiously optimistic” about the future. Anthony Lau, executive director, said he “wouldn’t dare to say whether the tourism industry had started a recovery,” and that indications are that there will also be a single-digit decline in overall visitor arrivals in May.

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

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