Fashion shopping in Hong Kong

Double-digit drop in Burberry’s Hong Kong sales as tourism slump continues to hit luxury market

But slumping pound has led to a slight pick-up and analysts see signs of stabilisation at other brands

PUBLISHED : Tuesday, 18 October, 2016, 11:43pm
UPDATED : Wednesday, 19 October, 2016, 12:23am

British luxury brand Burberry continued to feel the impact of Hong Kong’s tourism and consumption woes, with a double-digit drop in sales in the six months to September compared with last year, despite a “slight improvement” recently.

Analysts attributed the pick up to price reductions of between 10 and 15 per cent in Hong Kong and across the border due to the plunge in value of the pound in the aftermath of Britain’s vote to leave the European Union.

Amid prevailing weaknesses in the luxury sector in the city, there were signs of stabilisation based on a smaller decline in sales at Prada and LVMH, they said.

Carol Fairweather, chief financial officer of Burberry, said yesterday its 14 Hong Kong stores had seen a “slight improvement” between June and September, although she did not give figures.

“We continued to experience negative footfall throught out the half,” Fairweather said.

She said there were no plans to close any stores in the city as they were still making profits despite the persistent downturn. However, it would reduce the size of its biggest Hong Kong flagship store in Pacific Place by 50 per cent within the next financial year to save costs.

Amid dwindling tourist numbers, the focus in Hong Kong would be on local consumers, Fairweather said.

The British brand did record a 30 per cent jump in UK sales in the three months to September, as overseas shoppers, especially from China, rushed to London to take advantage of the weaker pound.

Hong Kong’s luxury sector has taken a big hit from a dwindling numbers of mainland visitors who have reined in their spending habits. Sales of jewellery, watches and valuable gifts slumped 22.5 per cent in the first eight months of this year. The number of mainland visitors dropped 9.2 per cent over the same period.

However, like Burberry, some luxury brands have lately started seeing some positive signs.

Hong Kong sales at LVMH, the world’s biggest luxury goods maker, improved from a “mid-teens” decline to a “mid-single digit” decline in the three months to the end of September, chief financial officer Jean-Jacques Guiony said.

In August, Alessandra Cozzani, chief financial officer at Prada, said there “signs of stabilisation in our business in Hong Kong and Macau” without disclosing details.

Mariana Kou, senior analyst at brokerage firm CLSA, said: “You can say there is a stabilisation of luxury brand sales under way.”

A substantial cut in store rentals in prime locations had helped to improve the profitability of luxury brands, she added, while companies such as Prada had launched cheaper products. This strategy might help to attract more younger customers.

But Kou stressed the lower statistic bases recorded last year might also contribute to the improved numbers and the economic outlook in the region remained challenging.

“We dare not be too optimistic at the moment.”