A slump in Chinese tourists is hitting retail stores hard in Hong Kong where shopping malls have become reliant on the influx of wealthy travelers from the mainland since travel restrictions were lifted in 2003, allowing mainland tourists to travel independently to the former British colony.
Mainland Chinese account for up to three-quarters of visitors to Hong Kong, but that number is falling, and shopping centers are struggling to "shift gears" and maintain sales.
Sebastian Skiff, executive director of retail development and asset management for Asia at Colliers International Group, said, “When you see such a sharp downturn, it is relatively harder for a shopping center to react as quickly, as a lot of spaces are tied up with very long leases. So it’s like moving a very, very large boat in the ocean.”
Hong Kong is experiencing its biggest retail slump since 2003. The government and industry groups have said the purchases of jewelry, watches, clocks and other high end items have already fallen nearly 25 percent this year.
China’s slowing economy means tourists are buying less when they come to Hong Kong, and many are choosing to travel elsewhere as visa restrictions for Chinese ease in other countries. The Chinese government’s crackdown on corruption is also denting sales of luxury brands.
“It impacts the whole retail market, because most of the people stay away from gift-giving practice, because it’s just politically wrong,” said Helen Mak, senior director of retail services for Hong Kong at Knight Frank, LLP.
Some Hong Kong shopping malls expect the decline in tourism, and it resultant slump in retail sales, to reduce rental income from large retailers as much as 40 percent over the next five years. To compensate for the loss, shopping centers may replace high-end stores that occupy many square meters of space with smaller food kiosks.
Swire Properties plans to increase the number of food and beverage outlets in its malls by 50 percent over the next two years. Analysts like Forrest Chan, with CCB International Securities, worry the retail sales slump will impact Hong Kong’s broader economy.
“Quite a good portion of the population in the retail sector is unemployed, and quite a number of the workers are very experienced in the service sector, so it might not be that easy for them to change to other sectors within the economy. So in the near term the unemployment figures are going to go up a little bit in Hong Kong,” he said.
That could impact Hong Kong’s retail sector even further, as shopping malls increasingly rely on local residents to make up for the loss in sales from mainland tourists. Last year retail spending was down more than eight percent, and analysts predict sales to decline further in 2016.