Could Hong Kong Luxury Retail Survive Its Winter?

Hong Kong’s luxury retail market is enduring a severe downturn, with government data revealing a 7.7% year-on-year decline in retail sales value for the first eight months of 2024, while sales volume dropped by 9.3%. Sales of jewelry, watches, clocks, and valuable gifts fell sharply, declining 24% in August following a 25.1% drop in July. The slump is largely attributed to changing consumer habits and travel patterns among mainland Chinese tourists, a critical pillar of the city’s retail sector.

Gary Ng, a senior economist at Natixis SA, attributed the decline to multiple factors, including subdued consumption, weakened consumer sentiment, and elevated interest rates. “Hong Kong’s economy faces higher pressure than the headline GDP suggests, with cautious spending behavior stemming from a poorer outlook and diminished wealth effects,” Ng explained.

Local consumption has also slowed in the post-COVID era, exacerbated by a surge in outbound travel by Hong Kong residents. “Outbound tourism has boomed as residents take advantage of favorable exchange rates for overseas spending,” Ng added.

Tourism trends reflect a tepid recovery. Official figures show that fewer Chinese visitors are returning to Hong Kong, and their average spending has halved compared to pre-pandemic levels. From January to July 2024, luxury goods sales remained 42% below 2018 figures, underscoring the sector’s prolonged struggles.

The downturn has led to the rise of “empty malls,” with retail spaces like the 1881 Heritage mall in Tsim Sha Tsui, once bustling with luxury brands such as Tiffany and Cartier, now largely vacant. Today, only three of its more than 30 units are occupied, and foot traffic has plummeted.

Despite these challenges, signs of recovery are emerging. Louis Vuitton recently announced its return to Times Square in Christmas this year with a larger store, signing a five-year lease for 12,000 square feet across two levels—2,000 square feet larger than its previous shop. Chanel and other high-end brands are also planning new openings. 

Still, obstacles remain. Looking ahead, Ng cautioned that Hong Kong may no longer hold its status as the top destination for luxury shopping. “Luxury retailers have adjusted strategies to maintain price uniformity across markets, so it’s no longer cheaper to shop in Hong Kong,” he noted, emphasizing that retaining local customers will be critical to mitigating external pressures.

“Direct sales channels in China, including brick-and-mortar stores and e-commerce platforms, have grown significantly. However, Hong Kong remains home to many wealthy families with strong potential spending power on luxury goods,” Ng said.

While more Hongkongers are traveling to mainland China for shopping and entertainment due to lower costs, luxury shopping remains limited. Colin, a banker who visits the mainland once a month mostly for dining, drinking, and massages, said: "Mainland spending levels are actually not significantly cheaper, but the quality of service is noticeably better, especially in restaurants and stores." However, he never purchases luxury goods there. "The price tags are actually more expensive compared to places like Japan or Korea, where tax refunds are available—not to mention the currency exchange rates are more favorable out there," he added.

Another Hongkonger, Venice, a white-collar worker at a recruitment company, visits the mainland occasionally with friends for dining, massages, and karaoke rather than shopping. "Luxury items or clothing aren't really cheaper in the mainland, but food is much more affordable. A proper meal like hotpot or Korean BBQ costs about 60% of what it does in Hong Kong," she said.

Despite this trend, Ng remains optimistic about the city’s prospects. “This trend will absorb some of Hong Kong’s consumption, but the luxury sector will only be significantly impacted if goods become cheaper in China—which is not the case now,” he concluded.