Cartier, the French luxury jeweller and watch maker, said it’s closing one of seven boutiques in Hong Kong to consolidate its sales network, reflecting the predicament of the city’s luxury retail industry amid a bruising recession and a collapse in tourist arrivals. The jeweller closed its boutique at CK Asset’s Heritage 1881 shopping centre on Canton Road, Cartier said in a statement. Separately, the retailer opened an outlet at New World Development’s K11 Musea, and put a nearby outlet on Peking Road through renovations. The rationalisation of Cartier’s three boutiques in Tsim Sha Tsui underscores the strategic changes that luxury retail operators must make to survive Hong Kong’s retail sl ump, as tourist arrivals trickled to a standstill. Tsim Sha Tsui, the traditional destination for shoppers from mainland China, has suffered the brunt of the slump, where August retail sales shrank for the 19th consecutive month. “Malls in shopping districts need to change their trade mix,” said DBS Bank (Hong Kong)’s property sector analyst Jeff Yau. “As tourist spending falls, [the retailers of ] luxury goods simply do not need so many stores. In the luxury goods industry, a consolidation is under way.” The collapse of tourist arrivals has added to the woes of reduced spending by local residents amid rising job uncertainties. That could cause total retail sales to bottom out at about HK$320 billion in 2020, returning the industry’s scale to what it was a decade ago in 2010, according to Knight Frank’s data, representing a new benchmark for annual retail sales for Hong Kong. “Since the retail sector can rely only on local consumption for now, sales of luxury goods will constitute only about 10 per cent of total retail sales value, compared to 19 per cent a decade ago,” said Martin Wong, associate director of research and consultancy in Greater China at Knight Frank. “The lingering impact of the Covid-19 pandemic has taken a heavy toll on Hong Kong’s luxury retail market, which supported the growth of rental charges on prime streets until the past year.” The Heritage 1881 shopping centre, redeveloped from the former headquarters of the marine police, is one of the four oldest surviving government buildings from the days of Hong Kong as a British colony. It reopened in 2009 as a heritage site and shopping centre after a development by CK Asset, which did not immediately respond to a query by South China Morning Post . Other luxury boutiques that still operate there include Mikimoto the Japanese purveyor of luxury pearls and Van Cleef & Arpels the jeweller. “Coupled with the change of shopping habit, it spurs a careful review by [Cartier] with a mindful mission to create a harmonious environment for today’s international shoppers,” the French jeweller said in a statement. The renovation of its Peking Road store and its new K11 outlet “resonate with the new retail dynamics of luxury shopping in the city,” Cartier said. Cartier is not the only tenant at 1881 Heritage to suffer from disappearing foot traffic. Tiffany & Co. closed its boutique measuring 4,000 square feet (371 square metres) at the 1881 Heritage at the end of 2019 when its lease expired. “Hong Kong’s status as the place to showcase luxury goods will gradually disappear” in the long term, said Yau. “We see a lot of retailers close, vacancy rise and the vacancy period lengthen. There would be rental concession and relief to tenants.” Online shopping has become increasingly prevalent, he said. Before 2008, e-commerce and online shopping made up less than 5 per cent of Hong Kong retail sales. But soon it will rise to double digits, he said. Many consumers buy cosmetics and fashion items online, taking away the need to visit bricks-and-mortar shops and stores. “Regional malls, which had a lot of fashion tenants, will need more F&B and entertainment in the long term, which will recover faster,” said Yau. “There will be more lifestyle and sports tenants.” Yau added restaurants and cinemas cannot pay very high rents but can keep traffic and malls will want to have more elements. Declining retail sales has already pushed Russell Street in Causeway Bay off its perch as the world’s most expensive shopping district, putting further pressure on retail landlords to cut their rents. The bleak outlook, coupled with competition from e-commerce, suggests that the vacancy rate in prime streets will [also] continue to surge and that prime street shop rentals will continue to face downward pressure for the rest of 2020,” said Wong.