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This article originally appeared in HongKongEcho 83: More than a mall? Challenges facing the tourism sector


It’s no secret that retail in Hong Kong has been suffering. But it’s not all doom and gloom according to Erwan Rambourg from HSBC. In fact, the city could well be turning a corner towards new opportunities.

Why Chinese visitor numbers will recover

Hong Kong retail sales started to decline in February 2014 and, apart from a handful of flattish months, have been declining ever since. Inbound tourism flows, both from the mainland and globally, started to fall in June 2015 and have remained negative. However, we believe that things are about to change, with both retail sales and inbound flows halting their slide going into the end of this year. Why? Mainly because the Chinese may start to return.

While the beginning of the year was poor for Hong Kong in terms of inbound mainland visitation (-12% y-o-y in May), the latest trends are less negative (-9% y-o-y year to date in September, with September itself down ‘only’ 5% y-o-y). As highlighted in many of our luxury goods reports, Hong Kong has become a somewhat commoditised destination for shopping, lacking diversity and offering little variety outside shopping. With Chinese travellers looking for more entertainment and fresh experiences, Hong Kong has been losing out to Europe, Seoul, Tokyo, Hainan, and Macau. But things may be starting to shift because:

First, while we understand there is no such thing as an easy basis of comparison, it is interesting to note that inbound flows from China to Hong Kong only started to become negative in June 2015. The worst two months were November and December, but we expect to see a considerable improvement in the y-o-y figures as 2016 comes to an end.

Second, there are reasons for mainlanders not to go to Europe, as concerns over potential terrorist-related incidents continue to weigh on psychology. With the exception of the UK, which has emerged as a key value-for-money destination following the recent fall in the GBP, there has been no major resurgence in Chinese tourism spending in the rest of Europe. Speaking of currency moves, but this time in the other direction, the stronger JPY has reduced the allure of Tokyo as a luxury hub. Also, the fear of curbs to Chinese outbound travel to Korea following the tension between the administrations over the THAAD anti-ballistic missile system could also benefit Hong Kong.

Third, there is now greater shopping diversity in Hong Kong. The likes of Apple and adidas and a range of niche brands are developing stores in the city, presenting an alternative to the luxury-only environment that has made the shopping experience ubiquitous over the years. Luxury brands themselves are also focusing on service and ‘retail excellence’.


The return of the qualified shopper

The other shift we have seen recently is a slight outperformance in terms of inbound flows from overnight versus same-day visitors. Since 2011, same-day visitors from China have dominated the city’s landscape as the more wealthy overnight visitors have lost interest and likely traded Hong Kong for more exotic destinations. This has led many retail and consumer companies to talk about the emergence in Hong Kong of so-called unqualified shoppers – consumers who trade in milk powder, diapers, cosmetics, and other commodities rather than in high-end goods. However, every month since August 2015, trends for overnight visitation have outperformed those for same-day visitation. One swallow does not a summer make, for sure, but 13 consecutive months of outperformance is a reassuring sign for premium consumer sales in Hong Kong.


Retail sales could be finding a level

For three years now, bullish investors have been arguing that a 20% drop in retail watch sales on top of another 20% fall can’t go on forever. After being proved wrong for a while, they may finally have a case, as Hong Kong retail sales could be finding a sustainable level. Still, general retail sales have remained dull – sales of jewellery and watches even more so. We are taking the view that, under the current foreign exchange (FX), geopolitical and price environment, Hong Kong’s retail pain could ease somewhat in the rest of the year and going into early 2017. Leaving aside Chinese tourists, consumer sentiment among locals in Hong Kong remains low, but is not deteriorating. In luxury, most companies reporting results recently have pointed to lesser declines, including Louis Vuitton, the bellwether for that industry. Its sales were down by a mid-single-digit rate in the latest quarter (ending September) in Hong Kong after a mid-teens decline the quarter before.


What assets can the city leverage longer term?

Shortly after the handover in 1997, the Hong Kong administration developed the motto ‘Asia’s World City’ and a new visual identity, a stylised dragon, to promote the city internationally. This was followed in 2000 by the establishment of Invest Hong Kong, an organisation designed to attract foreign investment. It could be time for the administration to take new initiatives. Today’s consumers are wealthier, well-travelled, and more sophisticated, and will look for something new. Hong Kong, Singapore, Seoul and Tokyo are all major shopping destinations. But Singapore is also a medical hub, and Seoul has the Korean cultural wave (K-pop, soap operas, etc.), while Tokyo is a foodie’s paradise and a spiritual retreat. Hong Kong now has an opportunity to offer more than shopping (remembering that’s what mainlanders spend more than 70% of their money on when they visit). The new bridge to Macau will help; so will the high-speed train to China, and the opening of a contemporary art museum can’t hurt. But perhaps there’s more that can be done.



Thirty-two million. That’s how many same-day visitor arrivals were recorded in Hong Kong for 2015. It’s an incredible number. But with spending, overall arrivals and average length of stay dropping, Hong Kong must look to become more than just a hub for day-trippers and stop-over visitors.

Ultimately, Hong Kong is already one of the most visited cities in Asia. The challenge is not to overhaul what’s already there, but to fine tune certain elements. Hong Kong is more than a shopping precinct and a westernised financial adjunct to mainland China. Let’s not be afraid to show it.

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