Shops prepare to pass on expenses
Firms consider indirect means to boost margins in price-sensitive Hong Kong
Sharp increases in raw-material costs are forcing Hong Kong's key retailers to draw up plans to pass the price rises on to consumers in the coming months.
Retailers will use an 'indirect' method of increasing prices to avoid driving away consumers - who remain price-sensitive despite Hong Kong having clawed its way out of six years of deflation.
The government last week said consumer price inflation had returned to Hong Kong, signalling a potential rise in salaries which in turn would stimulate domestic consumption.
Riding on improved domestic spending, leading retail stocks such as Esprit Holdings, Sa Sa International, Giordano International and Chow Sang Sang Holdings International reacted positively to the end of the prolonged deflation.
Senior executives of key retailers said they would use a combination of measures, including reduced discounts and sales promotions, to indirectly increase prices.
Casual wear retailer U-Right International Holdings chairman Leung Ngok expects a 5 per cent rise in prices for the firm's winter clothes.
To maintain margins, he said the firm would trim discounts to 50 per cent from 70 per cent.
Jewellery retailer Chow Sang Sang director Winston Chow said prices for raw diamonds had climbed 10 per cent this year; gold had surged 20 per cent since 2002.
'Our pricing strategy will be drawn up according to the raw material cost,' he said.
Simon Kwok Siu-ming, the chairman of Sa Sa International, which controls 35 per cent of the local cosmetic market, said a strong euro had already put pressure on the company for price adjustment early this year.
'But so far the suppliers have not yet raised product prices,' he said.
He expressed optimism over the retail market, saying any salary increases would strengthen the desire to spend.
'Our customers now spend only $500 for day and night cream but they will become more generous in spending. For instance, they will shop for better-quality facial cream if they earn more,' he said.
Hang Seng Bank chief economist Vincent Kwan Wing-shing said there was pressure to raise the price of imported products as food and fuel were more expensive.
'But retailers will only mark up prices slightly as wages still lag price inflation,' he said.
Kingsway Securities analyst Stephen Leung Siu-hong said retailers reporting strong earnings would reward staff with better salaries.
'This multiple effect will spill over to other sectors,' he said. Earnings prospects for leading retailers would be positive for six to 12 months, given a sustained economic recovery, he forecast.
