Across The Border

Mainland visitors returning, but with tighter budgets

Per capital spending by Chinese overnight tourists slid 15.8pc to HK$7,105 in the first half year, down 21pc from its peak of HK$9,000 two years ago.

PUBLISHED : Thursday, 18 August, 2016, 4:39pm
UPDATED : Thursday, 18 August, 2016, 10:05pm

Mainland Chinese tourists are returning to Hong Kong – but they are shifting their shopping patterns, which may not be good news for the city’s luxury retail sector, according to analysts.

The total number of tourists climbed in July for the first time in over 14 months, up 2.6 per cent from the same period last year, according to the latest figures from the Hong Kong Tourism Board (HKTB).

“This was mainly due to the arrival of more mainland tourists,” said Anne Ling, an analyst for Deutsche Bank. According to the statistics, the mainland tourist arrivals were up 2.2 per cent.

Mainlanders are so crucial to Hong Kong’s tourism and retail sectors, because they account for more than 70 per cent of total visitors to the city.

Experts say the rebound is probably the result of eased tensions between the mainland and Hong Kong, and that people are getting used to China’s visa policy changes last year, which tightened restrictions on mainlanders’ entering Hong Kong.

Officials from the HKTB now expect tourist arrivals to continue to improve in the second half and forecast arrivals may only drop 1.8 per cent for the whole of 2016, against the 10.7 per cent decline in 2015.

However, despite the rise in mainlanders, worryingly the amount they are spending has dropped.

Per capital spending by all overnight tourists to Hong Kong dropped 14.6 per cent to HK$6,492 in the first half of the year.

But spending by per capita by Chinese overnight tourists slid 15.8 per cent to HK$7,105, down 21 per cent from its peak of HK$9,000 two years ago.

Moreover, analysts see an marked change in the spending patterns of wealthy Chinese tourists, particularly.

“The rising Chinese middle classes are shifting to a new consumption pattern on overseas trips, and are now tending to spend more on a better travel experience, and less on buying luxury watches and jewellery, ” said Gao Jian, an analyst for Northeast Securities.

According to a recent survey jointly released by China Tourism Academy and Chinese online travel agency, more than half of all outbound Chinese tourists who booked trips through the website paid for premium travel packages, which included accommodation at four-star to five-star hotels. They dined in good restaurants with a local favour, and travelled in relatively spacious and upmarket tour group vehicles.

In particular, the study showed 80 per cent of the mainlanders travelling to Hong Kong in the first half of the year said they were doing so for “sightseeing” or “taking a vacation”, and only 20 per cent said they were going for “shopping”.

Mainland tourists are returning, but they only buying daily necessities like cosmetics and not high-end products
Anne Ling, Deutsche Bank analyst

“Mainland tourists are returning, but they only buying daily necessities like cosmetics and not high-end products,” said Ling from Deutsche Bank.

She said the change is likely to have a knock-on effect on the performances of Hong Kong retailers, with jewellery brands continuing to suffer, and cosmetics brands likely to benefit.

But the evidence is already starting to emerge.

Last month, jewellery firm Chow Tai Fook said its same-store sales in Hong Kong and Macau declined 20 per cent year-on-year during the April-to-June period.

It expects sales to continue to drop in the second half, and now plans to shut as many as eight stores by the end of the year.

Lifestyle International, the operator of high-end department store Sogo, also reported earlier this week that its half-year results had missed market expectations. Net profit slumped 50 per cent to 587 million yuan in the period, and revenues from the flagship Sogo department store fell 9.5 per cent.

Cosmetics brand Sa Sa, however, has just reported its revenues improved from April to June, which it attributed directly to more mainland tourist arrivals.

Its same-store sales in Hong Kong and Macau still saw a 4.8 per cent fall in sales, but that was a marked narrowing from the 17.6 per cent slide in the last fiscal quarter.

Analysts from JP Morgan said in a recent research note that the total number of retail transactions rose 0.6 per cent year-on-year, April to June, the first increase in a year, which it also said had been “driven by traffic growth from mainland Chinese customers”.

In another recent note, Deutsche Bank interestingly gave “Buy” ratings to two Hong Kong companies inextricably linked to the tourist industry: fast-food restaurant chain Cafe de Coral, and the affordable apparel retailer, Giordano.

Further evidence, that thrift and practicality are taking over from luxury when it comes to the spending habits of the city’s vital mainland visitors.