Research & Forecast Report
Hong Kong | RETAIL Q1 2016
Luxury retailers see weaker 2016 Joanne Lee Associate Director | Hong Kong The Hong Kong retail sector faces tough times, with the strong Hong Kong dollar and weakening Chinese tourist arrivals squeezing sales, especially at the high end. In Q1 2016, sluggish sales were seen not only in the luxury segment, but also in some mid-market businesses. Colliers Research reaffirms its prediction that rents and capital values in prime Hong Kong shops will decline further in 2016, down 10% and 24% respectively. We expect investors seeking yield to show interest in mass-market shopping malls, and recommend owners of retail properties to explore new retail concepts and try to attract a broader mix of tenants.
Retail sales see the biggest drop since 1999 Hong Kong retail sales fell for the twelfth straight month in February. Total retail sales value declined 20.6% year-on-year (YOY) in February 2016 to HKD37 billion after a 6.6% YOY drop in January, data by the Census and Statistics Department showed. This was the biggest drop since January 1999. Combining January and February figures, the value of sales of luxury goods, such as jewellery, watches and clocks, decreased by 24.2% YOY. This was followed by 11.4% YOY decrease in clothes, a 12.3% YOY decline in commodities in department stores, and 7.7% YOY decrease in medicines and cosmetics. Meanwhile, inbound visitors dropped 13.6% YOY during the first two months of the year, in which tourists from the mainland fell 18.0% YOY, according to the statistics from the Hong Kong Tourism Board.
Value of Hong Kong Retail Sales (by type of outlet) -30%
-25%
All Retail Outlets Jewllery, watches and clocks, and valuable gifts
-20%
% change year-on-year
-15%
Food, alcoholic drinks and tobacco
5%
0%
-7.8%
Clothing and footwear
Department stores
-5%
-24.2%
Chinese drugs and herbs
Consumer durable goods
-10%
-13.6%
-10.8% -25.9% -12.3% -2.0%
Fuels
0.0%
Other consumer goods
-6.5%
Supermarkets
0.2% 2015
Jan - Feb 2016
Source: Census and Statistics Department, HKSAR Government
10%
Current
2016F
Overall Rental Index*
80
-9.9%
Central
87
-8.0%
Causeway Bay
74
-10.0%
Tsim Sha Tsui
82
-12.0%
Mong Kok
80
-9.0%
2.5%
50 bps
Yield Index: Nov 2011 = 100 *Street level shops on key street segments Source: Colliers; Rating and Valuation Department
Colliers View
The slowing China economy, structural changes in mainlandconsumer behaviour, weaker inbound tourism and the strength of the Hong Kong dollar are to blame for the gloom in the retail sector, especially at the high end. Stability in the labour market and consistently low unemployment are positive for local consumption and will help mitigate these negative external factors. This is especially in the mass market, but even here there are signs of weakness. Colliers Research does not expect a rebound any time soon and foresees a two-year downward cycle.
More vacant shops ahead amid falling sales Many luxury merchants have painted a gloomy picture for their businesses in 2016. Sluggish sales have prompted them to freeze expansion plans or to close stores. Prince Jewellery & Watch announced it would shut down its 1,800 sq ft store at 51-52 Haiphong Road in Tsim Sha Tsui upon lease expiry in mid-2016, according to Sing Tao Daily on 23 February 2016 . Jeweller Chow Tai Fook said the company expected to close five or six stores in Hong Kong this year, according to Reuters on 8 January 2016. Another jeweller, Chow Sang Sang, had already closed two stores last year – one in Kwai Fong and the other in Causeway Bay – and we think more may be shut down in the near future. Chow Sang Sang hopes to seek rental savings of 20-25% for shops due for lease renewal this year.