Hong Kong retail sales slide 10.5 per cent in August, dragged down by decline in tourism and economic uncertainty

Industry faces uncertain outlook ahead of tax cut on cosmetics products on the mainland

PUBLISHED : Friday, 30 September, 2016, 5:53pm
UPDATED : Friday, 30 September, 2016, 11:23pm

Retail sales plunged 10.5 per cent in August on dwindling visitor numbers – the steepest decline since February – and the industry faces an uncertain outlook ahead of a tax cut on cosmetics products on the mainland.

The poor figure for August, which marked the 18th consecutive monthly contraction, dampened hopes raised in July when retail sales saw a narrower year-on-year decline of 7.7 per cent compared to the previous month.

Retail Management Association chairman Thomson Cheng Wai-hung forecast retail sales would decline for another year before the sector bottoms out, and that even the week-long National Day holiday on the mainland, which starts on Saturday, wouldn’t help.

He attributed the sharper sales decline to the surprising contraction in August of tourist numbers, which were held back by stormy weather and the Rio Olympics.

“A bottoming out is nowhere in sight,” Cheng said, though he expected the launch of Apple’s iPhone 7 might help slightly push up September’s figures.

At the same time, a tax cut on cosmetic products across the border, which comes into effect on Saturday, is expected to be another hit to the city’s retail sector.

The country’s finance ministry announced on Friday that the consumption tax on cosmetics, previously set at 30 per cent, would be waived entirely for non-luxury products, while the tax rate for luxury goods would be cut to 15 per cent.

The cuts mean more mainland consumers are likely to buy cosmetics at home instead of travelling to Hong Kong for them as the price gap narrows.

Cosmetics and medicine sales make up roughly 10 per cent of total retail sales in Hong Kong.

Rebecca Wong, a mainland tax and business advisory services partner with accounting firm PwC, said already-battered local retailers would have to offer even deeper discounts to lure mainland shoppers.

“Hong Kong still has its advantage of no tax at all, as well as more choice and reliable products, but such advantages are becoming less significant,” Wong said.