Luxury brands downsize in Hong Kong and move to Macau to reach Chinese tourists
With fewer tourists, particularly those in Chinese tour groups, visiting Hong Kong, high-end retailers are instead looking to Macau for expansion
Luxury-watch retailer Halewinner will almost double its store count in the gambling hub of Macau while closing two in Hong Kong, dealing another blow to the city’s faltering retail market.
Halewinner Watches Group will open at least nine more shops in Macau chairman Karson Choi said in an interview. Most of the new stores will be on the Cotai strip, where Sands China will open its Parisian resort this year and Wynn Macau will launch the Wynn Palace.
“This year we’re still going ahead with our major expansion plan,” said Choi. “That plan is in Macau.”
Macau, home to the world’s biggest gambling centre, is trying to diversify its image by welcoming luxury-brand shoppers. That effort is helping siphon big spenders from Hong Kong, where the number of visitors from China dropped for nine straight months and retail sales in February plunged the most in 17 years.
The outlook was no better for this week’s Labour Day holiday, with the Hong Kong Travel Industry Council estimating the number of package-tour travellers to drop by 50 per cent. The tour-group visitor count, which mostly consists of tourists from the mainland, plunged 60 per cent in the first quarter from a year before.
The gloom engulfed even Apple, with sales in China, Hong Kong, Macau and Taiwan plunging 26 per cent in the quarter ending March 30.
“The vast majority of the weakness in the greater China region sits in Hong Kong,” Apple CEO Tim Cook said during a call with analysts. One reason he cited is the local currency’s peg to the stronger US dollar. “That has driven tourism, international shopping and trading down significantly compared to what it was in the year ago,” Cook said.
Luxury handbag and fashion retailers also are taking hits in the city. Burberry sales in Hong Kong fell more than 20 per cent for a third straight quarter, and the company is seeking to reduce its local rent payments. Prada, which held Hong Kong’s biggest initial public offering in 2011, reported sales in Asia fell 16 per cent last year.
“The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects,” the Hong Kong government said after retail statistics were released in late March.
Karson Choi’s father is billionaire Francis Choi, whose Early Light Industrial Company makes toys for more than 30 brands, including Mattel, Hasbro and Disney. Early Light also owns properties in Hong Kong and is moving into consumer electronics and medical products to help increase profit margins, the younger Choi, 30, said.
Halewinner outlets sell watches from more than 40 brands, including a US$200,000 Jaeger-LeCoultre and a US$180,000 Blancpain. During an interview at a Halewinner outlet in Causeway Bay, Choi wore a steel Audemars Piguet Royal Oak timepiece priced at US$21,000.
The family acquired the watch retailer in 2010, when it had just seven stores. Now it has more than 30 outlets in Hong Kong, Macau and mainland China.
Sales at its Hong Kong stores dropped 30 per cent last year amid China’s economic slowdown, a government anti-corruption campaign and protests by Hong Kong residents claiming the city caters to wealthy Chinese visitors at their expense.
Zhou Guoliang, 54, a general manager in the electronics industry from Shanghai, and his wife rarely visit Hong Kong nowadays partly because of social tensions.
“I heard Hong Kong people insult Chinese,” said Zhou. “We come to bring consumption, and you should be nice and guide visitors.”
So he’s taking his money to Macau, where he vacations three to four times a year. Zhou once bought a US$7,000 Omega watch and a US$6,000 necklace from Chow Sang Sang with his winnings in Macau, although he observed the watches are slightly pricier in the former Portuguese city.
“People who gamble in Macau go there particularly for amusement and fun,” said Zhou. “I wouldn’t save the money to bring it back home.”
Swiss watch exports to Hong Kong in March fell 38 per cent from a year ago, the sharpest drop among major markets, according to the Federation of the Swiss Watch Industry.
Chow Tai Fook Jewellery, the world’s largest listed jewellery chain, and Sa Sa International Holdings reported slumping sales during the Lunar New Year holiday in February, when the number of Chinese tourists to Hong Kong dropped by 26 per cent from a year earlier.
Shares of Chow Tai Fook Jewellery have dropped 44 per cent from a year ago, while competitor Chow Sang Sang has declined 30 per cent. The benchmark Hang Seng Index is down 26 per cent from a year earlier.
China’s economic slowdown and anti-corruption efforts also affect Macau and its US$30 billion casino industry, yet there are signs the market has hit bottom. Visitor totals for the former Portuguese colony rose 4.2 per cent last month, and a flood of new projects like the Batman Ride targets tourists and families.
“Retailers are still willing to expand in Macau because Chinese visitors will continue to come and play in the gaming hub,” said Michael Cheng, a Hong Kong/China retail and consumer partner at PricewaterhouseCoopers.
Halewinner’s 15 shops in Macau experienced a downturn last year, though Choi remains bullish because “the situation improved” by the fourth quarter and the city is the only one in China with a gambling industry. For Hong Kong, he expects sales to drop 10 to 15 per cent this year.
The company plans to have more than 20 shops in Macau by year’s end and is trying different methods to engage with customers – even hosting parties with wine and cigars to show new watches.
“Buying things is one of the things you do when you go on a vacation,” Choi said. “They buy because they won some money or because they lost some money. A lot of customers lost some money and come to buy a product so they feel better.”