Stronger fashion sector seen in medium term

from Hong Kong Business High Flyers 2023

Standard Chartered Bank Hong Kong

Clothing and footwear sales in Hong Kong were heavily impacted over the past years

Shoppers are expected to increase spending on clothing and footwear.

Hong Kong shoppers are prioritising household spending in the near term, but this is expected to shift to the fashion sector between 2023 and 2026, Fitch Solutions reported.

This comes as international tourists return, which will likely bode well for Hong Kong as it is known for being a luxury shopping destination.

“The return to work and greater levels of socialising will drive short‑term growth in clothing and footwear spending in Hong Kong. We believe this growth will be sustained over the medium term (2022‑2026),” the report read in part.

Fitch Solutions forecasts that clothing and footwear spending will be the strongest‑performing essential spending category over the next five years. In 2022 alone, clothing and footwear spending grew by 7.9%year‑on‑year to $202.7b or around US$261b.

Some retailers have started banking on this as the brands have moved to expand their presence in Hong Kong. Just last July 2022, Singapore‑based Love Bonito, for instance, opened its flagship store in the city after entering the market in 2019 and opening a pop‑up store in 2021.

Clothing and footwear sales in Hong Kong were heavily impacted over the past years due to limits in traditional purchasing. Fitch noted consumers either reprioritised spending away from clothing and footwear or moved down price points.

Over the medium term, clothing and footwear spending will likely rise by an annual average of 6.7% to $260.3b, or around US$33.5b. This will outperform household spending growth projected to average 4.8% per year. Fitch linked this to a refocus on fashion spending amongst Hong Kong shoppers.

“Hong Kong’s retail market has traditionally been supported by high household incomes and spending, with spending by tourists, particularly from Mainland China, playing a large role in the luxury end of the retail market,” Fitch said.

“The luxury market is particularly important in Hong Kong, with a large number of global luxury retailers present in the market to take advantage of Hong Kong’s status as a global financial centre as well as high‑ spending Mainland Chinese and other international tourists.”

Essential vs. non-essential

In the near term, Hong Kong consumers will likely prioritise essential spending, outperforming non‑essential spending as Fitch expects disposable income in the market will see stunted growth in the next five years.

In particular, the average household disposable income is forecast to climb by 3.3% year‑on‑year to $449,400, approximately US$57,834. This will likely be cancelled out by the

In the near term, Hong Kong consumers will likely prioritise essential spending

stronger‑than‑expected inflationary pressures during the year which is estimated to average 1.9%YoY.

The average disposable income for Hong Kong households is expected to increase by 2.7% annually, reaching $498,000, or approximately US$64,092 in 2026. This is close to the 2.1% average annual inflation growth forecast, which will likely weaken consumers’ purchasing power. In the near term, essential spending will outperform non‑ essential spending as Hong Kong consumers pivot spending focus on essentials rather than discretionary non‑essentials. In 2022, essential spending will grow by 5.7%YoY whilst non‑essential spending will grow by 5.3%YoY,” Fitch said.

“This trend would carry through the medium term as essential spending by Hong Kong households is projected to grow by an annual average of 5% whereas non‑essential spending would see 4.7% annual growth through to 2026.”

Luxury market outlook

Moving forward, Bain & Company noted that it expects the global luxury market to be more resilient in 2023 as it sees an expansion in sales and market value.

“The luxury market now appears better equipped to cope with economic turbulence with its consumer base both larger and more concentrated, and customer‑ centricity and a multi‑touchpoint ecosystem set to provide resiliency amid disruptions,” the report found.

Across all luxury markets, China remains amongst the key countries, alongside the United States and Europe. Outside these key markets, Bain & Company sees “significant potential” in the Indian market, emerging Southeast Asia, Korea, and African countries.

Of these, India showed the biggest growth potential as Bain & Company projected the country could expand its luxury market by 3.5 times its size today by 2030.

“China itself, which remains crucial to the long‑term of the luxury market, continues to confront a challenging phase due to Covid lockdowns and is still performing below 2021 figures,” the report also read. “China’s luxury market is expected to recover between H1 and H2 2023.”