'TIS the season to be jolly - or at least do your best to appear cheerful as you tighten your belt and revise profit forecasts downwards, particularly if you happen to be a Hong Kong retailer. 'Overall sales in the fourth quarter are definitely slower compared with the same period last year, the whole retail climate has weakened and sales are sluggish,' Marks & Spencer's marketing controller Louisa So Wai-yung said. Ms So's store is not alone in facing the doldrums. Hong Kong's retail sector is projecting a dismal year-end with little joy from Christmas shoppers and no respite seen in the next few weeks and the run-up to Lunar New Year. Hit by high interest rates, a stock market and property slump and faced with job cut threats, Hong Kong people are hanging on to their wallets for dear life. 'This Christmas season is quite difficult for Hong Kong's retailers,' Salomon Brothers retail analyst Tamara Robinson said. Tourists to Hong Kong have evaporated to a great extent, scared away by post-handover uncertainty and poor finances. Japanese visitors in particular are a crucial ingredient to retail health, analysts and retailers say. 'With South Korea and Japan's economic problems, there is little incentive [for people from there] to travel,' Ms Robinson said. 'Even if they do travel, they would go to Southeast Asia.' Middle-range apparel retailer Giordano International, for example, derived about 30 per cent of its sales income from tourists and looked set to suffer a serious dent in profits, an analyst said. 'In Causeway Bay and Tsim Sha Tsui, the major shopping districts, the sales income from tourists in July was down 40 per cent year on year,' the analyst said. Dickson Concepts (International), an upmarket retailer, on Thursday reported worse than expected profit results for the first half and said annual profits would also drop if the region's financial gloom continued. 'It is the most difficult retail environment the group has experienced,' executive chairman Dickson Poon said. Economists warned Hong Kong was unlikely to improve next year. Daryl Ho of Jardine Fleming said a deteriorating tourist sector and export slowdown would put the brakes on the economy. Asset price deflation and a property and stock market drops would affect consumer behaviour. 'A higher interest rate burden to households will continue to restrict spending,' Mr Ho said. Some analysts slashed their forecasts for retail sales for next year by almost half. HSBC James Capel's Louisa Lai Ha-sung forecast 4.5 per cent nominal growth in retail sales for next year, compared with 8 per cent she predicted for this year. With interest rates unlikely to come down in the near future, it seemed unlikely retail sales would pick up, Ms Robinson said. OCBC Securities retail analyst Patricia Yeung Ka-ki agreed prospects were dim. 'The spending will not be as much as last year and there could be a drop of between 5 and 10 per cent in the fourth quarter,' she said. What can retailers do to fight back? Not very much it would appear, except discount heavily and hope to lure reluctant spenders. Marks & Spencer's sales started to pick up somewhat this month after a disheartening November, but whether sales picked up speed to reach expected Christmas levels was quite another matter, Ms So said. 'We store food, partyware, stationery and gift items specially related to Christmas, it helps get people into the store,' she said. 'We expect the discounting to be quite heavy,' Ms Robinson said. Luxury goods retailers were certainly accelerating their pre-season markdowns, in fact some had already started by late last month, she said. 'The biggest trends we are looking to are heavy markdowns and poor margins,' she said. 'That's the only thing they can do to boost consumption.' Despite lower rents, clearly this is a bad time for expansion. Unfortunately for Marks & Spencer, its long-planned 11th store in Hong Kong is due to open in February. Analysts said other retailers were likely to remain on the sidelines, or possibly start looking for acquisitions - perhaps triggering some retail sector consolidation. And which retailers should the average person invest in? Clearly the ones with the least exposure to Hong Kong and the region. Ms Lai said companies such as Glorious Sun Enterprises and Esprit Holdings would emerge the winners because their business focus was elsewhere.