Hong Kong’s retail ‘ice age’ to thaw in 2017, says PwC

PUBLISHED : Tuesday, 07 June, 2016, 8:10pm
UPDATED : Tuesday, 07 June, 2016, 8:12pm

Hong Kong’s retail “ice age” will start to thaw next year and eventually return to its glory days as the local currency stabilises and prices of goods become more affordable, an industry expert predicts.

The decline in retail sales will hit rock bottom in 2017 with a 1.5 per cent year-on-year contraction, after a steeper 4.4 per cent slide this year, according to forecasts by accountancy firm PricewaterhouseCoopers.

Retail sales will edge up 2 per cent in 2018 and by 2020 will have returned to the peak level of HK$494 billion in annual sales last seen in 2013.

Annual retail sales are forecast to fall from HK$475.2 billion in 2015 to HK$454.2 billion this year.

“Hong Kong’s retail sector is going through an ‘ice age’ but that will more or less be over after 2017,” said Michael Cheng, a retail and consumer leader at PwC, citing a weaker local currency, more affordable prices and support from China’s stable economic growth as key factors.

Cheng explained that the relative strength of Hong Kong’s currency – which is pegged to the US dollar – compared to other Asian countries encouraged tourists and locals to spend money abroad in the past year.

Brands will adjust prices to more affordable levels. Prices rose too much in the past 5 to 10 years
Michael Cheng, PwC

But Cheng said that is expected to change as the outlook for further US interest rate hikes became uncertain after disappointing employment figures were released in the US last week.

He added that two US interest rate increases this year, compared to a previous prediction of four, would help stabilise the Hong Kong dollar, which in turn would help steady tourist flows.

Tourism figures fell by the smallest margin this year in April, according to the Hong Kong Tourism Board.

The luxury sector, which has been hardest hit by the downturn, has seen retailers starting to offer deeper discounts to make ends meet.

Cheng said high-end brands will focus more on “affordable luxury” and move to more cost effective locations in the city.

He cited the examples of French couture fashion house Balmain collaborating with Swedish clothing chain H&M to create a more affordable clothing collection for sale in H&M stores, and how German sportswear maker Adidas replaced US luxury brand Coach at its four-storey corner store in Central.

“Brands will adjust prices to more affordable levels. Prices rose too much in the past 5 to 10 years,” Cheng said. “Hong Kong’s consumer spending power will come back as things become more affordable.”

In a separate survey, Hong Kong emerged as the hottest retail market for new entrants last year, according to real estate consultancy firm CBRE.

Hong Kong attracted 73 new international brands last year, up from 58 in 2014, pushing the city to the top of the list from fifth place amongst 191 cities worldwide.

“Despite strong headwinds in the retail sector, Hong Kong still managed to welcome a large number of quality entrants last year,” said Joe Lin, CBRE’s executive director of advisory and transaction services in retail. “To gain a ‘stamp of approval’ for the brand, it is essential to have a store in major cities such as Hong Kong.”