Retailers are hurting from a stronger Hong Kong dollar which is making their merchandise more expensive for Chinese tourists whose own currency has been devalued.
A growing number of Chinese consumers are turning to Southeast Asia, Europe and Japan where their spending power is competitive, according to Catherine Lim, a senior analyst of Bloomberg Intelligence
European luxury merchandise such as jewelry and watches is 5-8 percent cheaper than those in Hong Kong even after retailers increased prices.
The widening exchange rate differential between the Hong Kong dollar and the yuan is suppressing the buying appetite of Hong Kong shoppers and mainland visitors.
On the flip side, Hong Kong shop rents are expected to fall, benefiting retailers.
Bloomberg Intelligence estimates that a 20 percent rent cut will translate to earnings growth of 20.3 percentage points for Emperor Watch & Jewelry (00887.HK) and 4.6 percentage points for Sa Sa International (00178.HK) which have large exposure in local businesses.
However, Lim said there is a six-month time lag before any rent cut will be reflected in financial results.
Commercial real estate services provider Colliers International expects average rent in Hong Kong to fall by 15 percent from the previous year, guandian.cn reported Thursday.
Lim said retailers hoping to cash in on e-commerce are still in a “trial and error” stage and none has produced an outstanding performance.
For them, profitability is not the first priority in the near term, Lim said.
– Contact us at [email protected]