Hong Kong and Singapore luxury retailers to struggle luring Chinese tourist spending

PUBLISHED : Wednesday, 30 September, 2015, 10:19am
UPDATED : Thursday, 01 October, 2015, 12:51am

The changing tastes of mainland Chinese tourists may leave luxury retailers in both Hong Kong and Singapore out in the cold.

While the October 1 National Day holiday is traditionally seen as a golden week by Hong Kong retailers, when wealthy mainland Chinese come to shop in the city, the stock market rout in the summer and the devaluation of the yuan in August by over 3 per cent to the US dollar is bound to hurt the appetite of the tourists to splurge, analysts said. This is especially so given the peg of the Hong Kong dollar to the greenback.

Aside from Hong Kong, Singapore appears poised to lose its share of the market  for  mainland Chinese buying luxury goods. South Korea and Japan are in fashion and domestic sales in China may come back, said a research report by Erwan Rambourg, Global Co-Head of Consumer and Retail Research of HSBC.

“Chinese consumers are changing their preferred destinations very quickly on price arbitrage, fashion trends and regulation,” Rambourg said.

Last year, some 60 per cent of mainland tourists’ outbound trips were to Hong Kong and Macau, while the top four destinations were South Korea, Thailand, Taiwan and Japan.

Click the chart below to enlarge.

“This year should prove similar but we expect growth to have shifted, with Japan and Thailand up, Korea and Taiwan broadly unchanged and leading destinations Hong Kong and Macau losing share,” he said.

Currency is a major issue for tourists trying to decide where to go.

“In terms of currencies, the  euro/US dollar  on a 12-month view is still very favourable for the Europe-listed luxury companies because hedging will have delayed part of the positive impact to 2016, while the  yuan’s recent slight decline is not that relevant,” Rambourg said.

“After the shock at the beginning of the year, the  Swiss franc has lately started to weaken, which should bring some relief to Swiss watch manufacturers.”

In terms of stocks, Rambourg said he likes LVMH, Moncler, Hermès and Hugo Boss, which are all rated as a buy. For longer-term investors, Richemont and Tiffany look attractive. For China domestic duty free outfits, he would buy CITS; for Korea, AmorePacific and Hotel Shilla; and for global travel, Samsonite.

BNP Paribas analyst Emily Lee said the  rise of Korean brands and the popularity of online shopping has hurt Hong Kong retailers such as Sa Sa and Bonjour, which used to be  the must-go stores for mainland tourists to pick up cosmetic products.

“The rising popularity of Korean brands showcases the change in Chinese consumer behaviour, favouring new and fast-to-market products. Both Sa Sa and Bonjour are competing on new product launches. We believe this may put an additional burden on sourcing and lead to changes in inventory management as well as impacting margins negatively with average gross margin around 50 per cent for Korean brands,” she said.

 The trend for customers to buy cosmetic products has prompted the two  retailers to provide  online sales platforms, but online sales only represent 4.5 per cent of Sa Sa’s total sales this year and account for less than 2 per cent for Bonjour.

Click the chart below to enlarge.