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Hong Kong
By Mary Kavanagh
Will the forthcoming holiday season be able to lift Hong Kong jewelry sales out of the doldrums? That is the question on the minds of many in the diamond trade across the city. Business has been challenging year-to-date and the diamond industry is desperately in need of a pick-me-up. Yet the outlook is not promising. Chow Tai Fook (CTF), a leading jeweler in Mainland China, Hong Kong and Macau, and the world’s largest jewelry retailer by market value, issued a profit warning ahead of its first-half results, announcing an expected decline in net profit by 40 percent to 50 percent for the six months ending September 30, 2015, compared to the same time in 2014. CTF attributed the decline, significantly higher than the 27 percent drop reported for the half-year ended March 31, to weak consumer sentiment in Hong Kong and Macau, reduced gross profit margin caused by a change in product mix — more lower-margin gold products being sold and less higher-margin gem-set jewelry — and unrealized hedging loss on gold loans. Luk Fook, another of Hong Kong’s largest jewelry retail chains, also issued a profit warning ahead of its first-half results. They expect profits to fall by roughly 40 percent compared to last year due to a decline in revenues from gem-set jewelry products and a decline in overall gross margin caused by an “increased sales mix of gold products driven by the small-scale ‘gold rushes.’”
Retail sales in the city continued their downward spiral in September and expectations for a reverse in this trend seem low. Overall sales in September fell for a seventh consecutive month, recording a decline in value of 6.4 percent over 2014 — the biggest monthly percentage decline since January 2015 — and a drop of 3.1 percent in volume. Sales of jewelry, watches, clocks and valuable gifts were down a whopping 22.9 percent in value, the biggest percentage drop since June 2014. The decline in jewelry sales in August was 8.8 percent by comparison. The Hong Kong Retail Management Association (HKRMA) warned that sales during the upcoming Christmas and Lunar New Year holidays will be worse than in past years. “Most of the member companies indicated a single-digit drop in sales value for the 2015 Christmas holiday,” HKRMA said in a statement. Thomson Cheng, the new HKRMA chairman, said he expected retail sales for the whole year to decline between 2 percent and 3 percent. The government attributed the decline in sales to a drop in tourists from Mainland China and weak consumer sentiment exacerbated by a volatile stock market. “Looking ahead, retail business will likely still be constrained by the weak performance of inbound tourism in the near term. Much will also depend on how the dimmer global economic outlook will affect the economy and local consumer sentiment going forward,” a spokesperson for the government said.
The Hong Kong diamond business has long benefited from visitors from Mainland China, although this year has seen a marked change in the city’s appeal to luxury shoppers from over the border and a decrease in spending from those that have come. The number of tourists visiting from the Mainland in September fell 4.7 percent year-on-year, following declines in June and July. The fall update of Bain & Company’s 2015 Worldwide Luxury Report highlights changes in the buying behavior of Chinese tourists. “Undoubtedly, Chinese consumers play a primary role in the growth of luxury spending worldwide,” said Federica Levato, a principal at Bain and co-author of the study. “For years, we have known that they spend far more abroad than in Mainland China, but what’s changing is that they’re spending little money in historically popular destinations, such as Hong Kong and Macau, and are instead gravitating to new locales, such as Europe, South Korea or Japan, to benefit from currency fluctuations that drive favorable price gaps.” The report said Hong Kong and Macau were likely to experience a drop of 25 percent in sales of personal luxury goods this year and attributed this to the fall in tourists from the Mainland and the Chinese government’s ongoing anticorruption campaign.
Peter Lam, chairman of the Hong Kong Tourism Board, acknowledged that the tourism industry is facing its most difficult time in almost eight years. “Most companies and business owners in Hong Kong are very concerned about the situation, as the recent data on visitor numbers as well as total retail sales are far from ideal,” Lam told the China Daily. “Which is why the Tourism Board needs to step up to put more efforts into promoting Hong Kong,” he added. Only time will tell what the holiday season has in store for the retail sector in Hong Kong and what the prospects of an upturn in the market are.Article from the Rapaport Magazine - December 2015. To subscribe click here.
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