China-South Korea row over missile defence seen as potential boon for Hong Kong retailers

PUBLISHED : Sunday, 12 March, 2017, 9:03am
UPDATED : Sunday, 12 March, 2017, 10:37pm

China’s recent ban on group tours to South Korea in retaliation against a planned deployment of a US missile defence system could make life easier for Hong Kong’s struggling retailers.

As mainland Chinese vacationers stay away from South Korea, Hong Kong is likely to see a pick-up in visitor numbers, experts say.

“South Korea, Southeast Asia and Hong Kong are all short-haul attractions favoured by mainlanders, and often if one market faces headwinds, it can have a knock-on effect on the others,” said Mariana Kou, head of Hong Kong consumer research with CLSA. “Hong Kong may be one of the major beneficiaries of the latest movement.”

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A Chinese travel ban to South Korea could add up to a rosier picture for local retailers who’ve been hard hit amid the economic downturn and a slump in shoppers from the mainland.

Underscoring the hard times affecting the sector, US fashion chain Abercrombie & Fitch announced in November that it will close its four storey flagship store in Central as early as this year, exercising an option that will allow it to break lease on the Pedder Street property which it rents for HK$7 million per month.

Last week, Beijing ordered domestic travel agents to stop offering group tours to South Korea, as well as hotel and flight booking services for individual travellers. The move was taken amid an intensifying diplomatic ruckus linked to the US missile shield system known as THAAD.

Although designed to protect against attacks from North Korea, THAAD’s radar is considered by Beijing as a threat.

The number of mainland Chinese visitors to South Korea rose to 8 million last year, almost quadruple the level seen in 2012.

The Korea Tourism Organisation estimated that a 50 per cent drop in mainland tourism visits would negatively impact the tourism sector to the tune of US$9.6 billion.

Analysts say the ongoing diplomatic row could benefit Southeast Asia and Hong Kong over the next few months, as thousands of holiday makers readjust their travel plans.

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The unfolding dynamic means middle class shoppers from China’s less affluent cities are likely to flock to Hong Kong as an affordable alternative, whereas affluent holidaymakers from cities such as Shanghai and Beijing are less affected, as they prefer instead to shop for luxury brands during holidays to Europe.

Data from the Hong Kong Tourism Board shows spending by individual travellers has been on a downward trend. The average overnight visitor to the city spent HK$6,602 last year, down from HK$7,234 in 2015. The Tourism Board is predicting a further 5.2 per cent drop to HK$6,256 this year.

Such evolving demographics suggests any uptick in visitor numbers in the coming months won’t necessarily translate into a revival in sales of luxury watches and high-end jewellery.

A five-day package tour from Shanghai to South Korea can cost as little as 1800 yuan (US$260), or roughly about the same as a visit to Hong Kong, according to online classified travel ads.

In Seoul’s bustling Myeong-dong shopping arcade, Chinese consumers arrive by coach to snap up discount cosmetics. Similar bargains could be found in Hong Kong at retailer Sasa.

“For many Chinese people who would otherwise head to South Korea for vacation, they may have a second thought and pick another destination not too far away from what they can afford and not too different from what they are expecting,”said Walter Woo, a consumer analyst with China Merchant Bank International.

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