Luk Fook Holdings

Dollar strength and high rents killing Hong Kong retail, warn Sincere and Luk Fook

The mainland’s anti-corruption drive has crimped demand for luxury goods

PUBLISHED : Thursday, 26 November, 2015, 8:42pm
UPDATED : Thursday, 26 November, 2015, 8:42pm

Dollar strength and high rents are killing the retail business in Hong Kong, the latest half-year result reports of two pillar businesses of the Hong Kong retail sector showed on Thursday.

Sincere Company, the operator of Sincere Department Store, the oldest department store in Hong Kong, reported its loss for the six months to the end of September had grown 34 per cent year on year, to HK$93 million.

Luk Fook Holdings, the operator of Luk Fook Jewellery, saw its profit for the period dive 42.6 per cent year on year to HK$463 million, while revenue was down 7.7 per cent to HK$6.96 billion.

Sincere and Luk Fook’s results matched the gloom in results reported by jeweller Chow Tai Fook on Tuesday. Chow Tai Fook’s management said net profit for the six months to the end of September had dived by 42.2 per cent, with store traffic slumping 31.2 per cent year on year.

The mainland’s anti-corruption drive has led to mainland consumers shunning ostentatious displays of wealth, crimping demand for luxury goods. Luk Fook said in its report that gem set sales, which made up 37.3 per cent of its sales revenue, had dived 17 per cent.

It said it had spent by past year reducing inventory.

“Mainland visitors’ spending pattern has shifted towards low- and medium-priced products,” it said. “Accordingly, the group will offer more fashionable and affordable jewellery products suitable for wearing in the workplace ... to attract middle-class customers.”

A strong US dollar – to which the Hong Kong dollar is pegged – is also to blame, with goods in Hong Kong looking more expensive for tourist shoppers than in competing destinations. Asian currencies have been on a depreciating trend against the US dollar.

This is all happening as more flexible visas are being extended to mainland customers in competing tourist destinations such as Europe, Japan and South Korea, which makes Hong Kong a less attractive shopping destination and takes away the foot traffic in Hong Kong prime districts – even as retailers still have to bear high rental costs.

“Looking ahead, with the negative impact from the stock market volatility, comparatively high rents and wages, a strong US dollar and less Chinese tourists, the immediate forecast for the Hong Kong retail scene is not optimistic,” Sincere’s management warned . “It will be a challenging second half of the year.”