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Pain From Hong Kong Protests Spreads as Luxury Names Ge...

Business Maverick

Business Maverick

Pain From Hong Kong Protests Spreads as Luxury Names Get Hit

Protesters occupied Canton Road in Tsim Sha Tsui during a protest in Hong Kong, China, on Sunday, July 7, 2019. The Hong Kong government said it was taking measures to accommodate a march today through one of Hong Kong's busiest tourist districts, the lastest demonstration in weeks of mass protests against a proposed law allowing extradition of criminals to mainland China. Photographer: Kyle Lam/Bloomberg
By Bloomberg
19 Jul 2019 0

The impact from the Hong Kong protests is spreading to global luxury retailers, with jewelry and cosmetics getting hurt as shoppers and big-spending travelers stay away.

The impact from the Hong Kong protests is spreading to global luxury retailers, with jewelry and cosmetics getting hurt as shoppers and big-spending travelers stay away.

Swiss luxury-goods maker Richemont became the latest casualty, saying Thursday the street demonstrators dealt a blow to local sales. The owner of Cartier and Van Cleef & Arpels echoed Swatch Group AG in saying that the unrest in Hong Kong, the top export market for Swiss watches, weighed on sales due to store closures and lower tourist arrivals.

With restaurants and consumer brands already affected, retailers now face a widening disruption as shops from the city center to Hong Kong’s suburbs have been forced into early closures due to a lack of customers. A peaceful gathering of tens of thousands of protesters last Sunday turned into a fight with the police at a mall in Sha Tin on the city’s outskirts.

LVMH and Kering SA are scheduled to report first-half earnings next week, potentially giving more insight into how badly the luxury sector is affected.

Travel Impact

The historic demonstrations have been brought about by Hong Kong Chief Executive Carrie Lam’s bid to ease extraditions to the mainland. The proposal has prompted hundreds of thousands of protesters to take to the streets, bringing parts of the city to a halt since early last month.

HSBC estimates that 350,000 mainland Chinese tourists will stay away this year because of the unrest, SCMP reported. Flight bookings from Asia — excluding the mainland and Taiwan — to Hong Kong fell 5.4% in the period of June 16 to July 13, according to researcher ForwardKeys.

Singaporean Charles Kee, who had booked a flight to Hong Kong for August, said he will cancel the trip if the violence escalates. “Hong Kong is a pretty small place, so if tourists want to try to avoid possible protest areas, there may not be enough things for us to do,” he said.

Bad Timing

Hong Kong remains an important center for wealthy Asian shoppers, particularly those from the mainland. China’s rising middle class has fueled growth in the luxury market, making up a third of global high-end purchases. Hong Kong accounts for between 5% and 10% of global luxury sales, according to Luca Solca, an analyst at Sanford C. Bernstein.

The setback comes at an inopportune time for retailers already facing headwinds from the trade war, a depreciating Chinese currency that lowers mainland tourists’ purchasing power and the threat of a global recession affecting consumer spending, said Jennifer So, senior analyst at Lego Asset Management in Hong Kong.

Hong Kong Groups Continue Protest of Extradition Bill With March In Shatin
Workers inside a Giorgio Armani store watch as demonstrators gather inside New Town Plaza shopping mall in Shatin on July 14. Photographer: Paul Yeung/Bloomberg

“Retailers that rely more on tourist spending or discretionary spending like jewelry, cosmetics and hoteliers will suffer the most,” So said. “Online spending and e-commerce will fare better.”

The Hong Kong Retail Management Association said Tuesday that most of its members reported a single-to-double-digit drop in average sales revenue between June and the first week of July, when multiple demonstrations converging on major office and retail districts took place.

Hong Kong’s Economy Starts to Feel the Hit from Protest Chaos

Among these affected were Sa Sa International Holdings Ltd., a seller of cosmetics, which reported a 15.3% drop in same-store sales in Hong Kong and Macau for the three months through June. For the same period, Chow Tai Fook Jewellery Group Ltd. posted an 11% decline.

Possibly easing the retailers’ pain is an expected decline in store rents caused by the protests. Rent for street shops is set to drop 5% during the second half of the year, said Simon Smith, who heads Savills Research & Consultancy in Hong Kong.

“The retail market is not looking good in the second half,” Smith said.

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