A drop in the number of individual visitors from mainland China may actually benefit Hong Kong as it is likely to drive down rents for commercial space to normal levels, said Peter Lau, chief executive of international fashion retailer Giordano International Ltd. (00709.HK).
“If the Hong Kong and central governments make some suitable adjustments to the unexpected impact brought by individual visitors, I believe that the rent in Hong Kong will start to normalize in the coming three to five years,” Lau said.
“Normalization [of the rent level] means that all trades and professions can have equal opportunities to afford the rent,” he said, adding that average rent should go down by 30 percent from the current level.
He also said that although less visitor traffic from the mainland will adversely affect the retail business, it may encourage more local people to shop in the busy districts.
Sales at Giordano declined by 6 percent in Hong Kong in the previous financial year. Lau said the company will relocate some of its stores from high-rent areas to other districts to improve profitability in the local market.
Lau’s remarks came after Hong Kong’s Chief Executive Leung Chun-ying said late last month he would propose to central authorities that the Individual Visit Scheme be tightened during his visit to Beijing for the “two meetings”, the annual sessions of the Chinese People’s Political Consultative Conference and the National People’s Congress.
The uncontrolled implementation of the scheme has been blamed for the surge in parallel goods trading in the territory.
But many retail businesses are also opposing the plan to tighten the policy as they feel it would affect their revenues, which largely depend on the influx of mainland visitors to the city.
Retail sales in January dropped 14.6 percent from a year earlier, the worst decline since the SARS outbreak in 2003.
But Lau believes the plan will have little impact on Giordano as individual visitors are not its main target consumers in Hong Kong.
He also said the protests against parallel goods traders that erupted in Tuen Mun, Sha Tin and Yuen Long over the past weekends are not a major concern.
Net profit at Giordano, which has more than 2,400 stores worldwide, dropped 38 percent to HK$408 million for the financial year ended December 2014.
Inventory turnover days dropped by two days to 80 days, which the company described as “disappointing”.
“2014 has been a tough year for Giordano,” Lau said. “Trading conditions in mainland China continue to be challenging, with growth in retail capacity continuing to outstrip demand.”
Other challenges include currency depreciation and socio-political unrest in Southeast Asia as well as geopolitical instability in the Middle East.
Sales declined by 9 percent in mainland China, Giordano’s biggest market. The company has strived to improve profit there by shutting down about 200 unprofitable stores in the previous year.
The company will close about 10 more loss-making mainland stores but add about 50 new stores in 2015, Lau said.
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