Hong Kong’s landlords and -retailers have found themselves on the receiving end of a tumultuous few months that began in late 2014. Main arteries in Hong Kong’s Causeway Bay, Central, -Admiralty and Mong Kok shopping districts were clogged with pro-democracy demonstrations in 2014. Meanwhile, the corruption crackdown on the mainland caused a sharp curtailing of luxury purchases by visitors: JLL’s Hong Kong office reported a 15 to 20 percent year-on-year decrease in these sales during the first four months of this year. And now the expression of anti-mainlander sentiment among many Hong Kong residents, combined with competition from other tourist destinations, has reduced the number of visitors.
Hong Kong’s tourism board has long touted a paradise offering a more polished retail sector than on the mainland, and the shopping centers have been air-conditioned sanctuaries from the hustle and bustle of the city’s hot and humid, typically jammed-up streets — ideal for the newly minted upper-middle-class from mainland China. And hotels and restaurants need make no sweeping changes to accommodate these visitors — people in Hong Kong are Cantonese-speaking, but they have no difficulty with the Mandarin of the mainlanders. Furthermore, Hong Kong is readily accessible to mainland Chinese shoppers by land, sea or air, and at reasonable cost, making even day trips or weekend getaways quite affordable.
Until recently, Chinese shoppers here were typically seeking luxury goods, gadgets and foods — items that are too often faked on the mainland. The Hong Kong market, though, guaranteed quality, and shopping here was worth going that extra mile for. Mainland shoppers contributed to some $11.5 billion — 36 percent — of the city’s overall retail sales in the first half of 2014. But though the Chinese tourist trade is growing globally, Hong Kong is seeing the opposite result. Last year Hong Kong recorded a year-on-year decrease in retail sales, the first such in a decade. To be sure, this was a mere 0.2 percent slip from 2013, and sales totaled $63.6 billion for the year. Arguably, therefore, sales in Hong Kong actually held respectably steady — except that the city’s retail sales growth is typically upwards of 10 percent yearly.
“Mainland visitors are shifting from overnight arrivals to same-day visits,” said Helen Mak, senior director of retail services at Colliers International. “The shopping behavior of same-day visitors is very different from overnight arrivals, which decreased sales of luxury watches, jewelry and retailers located on high streets.”
A stroll through some of the Central District’s malls reveals plenty of foot traffic. But before long, one realizes that it is just that: traffic. Few are actually shopping. Go up a floor and the walkways are virtually empty. Retailers that lease space have been asked by some landlords to drop prices so they can lure back customers, according to local news reports. Meanwhile, many mainlanders are not even coming at all now. As the Chinese currency strengthens, it is cheaper for Chinese tourists to visit Japan, South Korea and Western Europe. In this respect, Hong Kong has lost its competitive edge, as its own currency is pegged to the U.S. dollar, which has also gained strength.
Eager to take advantage of the Chinese tourist trade, foreign governments, hoteliers, restaurateurs and retailers have reconfigured their operations. Landlords and retailers are employing Mandarin speakers and offering special deals through tourist agencies. Popular hotels in Paris have expanded their breakfast options to include Chinese staples. Gucci, Prada and others offer exclusive tours reserved for -top-tier -clients, including visits to their company headquarters. The Japanese government has eased visa requirements and extended sales-tax exemptions to push for more retail transactions by Chinese visitors. Popular shops in Seoul are increasingly staffed with Mandarin-speaking salespeople, and Taiwan is stepping up visa issuance to Chinese passport holders.
These welcome mats are a significant contrast to the chilly reception mainland Chinese have sometimes received in Hong Kong. Residents have complained about the congestion that mainlanders cause, and they grouse frequently about the visitors social conduct and allegedly bad manners. Some shoppers in Shenzhen, just beyond the border with Hong Kong, cite the highly publicized anti-China sentiment in Hong Kong as a reason to select other shopping destinations, calling the situation in Hong Kong “frightening,” “insulting,” and “loaded with pressure.”
But shopping center landlords are not reacting hastily to the shifting retail environment. Though Cushman & Wakefield reports that street-shop rents in the high-end Causeway Bay district fell by 11 percent year on year in March, shopping center rents have stayed the same, or have even increased. And landlords may be banking on the prestige they can offer in the eyes of stronger brands, figuring they can therefore afford to lose a few weaker tenants, says Mak. “Shopping centers have a very competitive advantage to attract top-tier clients,” she said. “They want to change or even upgrade their image, then maintain it. Brands want to stay in shopping centers because they naturally attract shoppers, so the competition is keen.” Shopping center landlords and their clients want more variety within the same structure, including dining and entertainment.
Meanwhile, some shopping malls and stand-alone retailers that cater to locals do not seem to be doing too badly. H&M is set to open its largest Asia flagship store here this year, in Causeway Bay, paying about $1.3 million in monthly rent for the multilevel space — nearly double what it paid at its previous four-story flagship, in the Central District. Surely, that takes confidence. And some malls outside the high-end districts are seeing shopper numbers trend upward, in some cases with year-on-year foot-traffic increases approaching 40 percent, according to reports in the South China Morning Post.
Still, with multiple and compelling reasons to go overseas, and the financial means to do so, mainland Chinese shoppers are spending much less time in Hong Kong. It happens that the city’s high-end retailers are taking the hardest hit, and expectations are that overall retail sales will decline more this year. On a mildly positive note, Hong Kongers say this will realign the retail sector so that the high end becomes the focus again. And though that is no foregone conclusion, perhaps a slowdown in business will bring a period of détente, helping ease tensions between locals and visitors, and perhaps heralding greater prosperity in the near future.
