Date
8 December 2016
Improved shop vacancy rate and new long-term leases signed by some retailers have fueled hope that Hong Kong's retail sector is coming out of the woods. Photo: HKEJ
Improved shop vacancy rate and new long-term leases signed by some retailers have fueled hope that Hong Kong's retail sector is coming out of the woods. Photo: HKEJ

Is Hong Kong’s retail sector on the mend?

Hong Kong’s retail sales slumped 10.5 percent in August from the year before, marking a decline for the 18th straight month.

However, it is not all bad news as some retail chains have reported better-than-expected earnings.

Amid the positive reports from some retailers, we need to ask this question: Is the sector bottoming out?

Let’s take a look at two retailers which reported improved results recently.

Fashion retailer I.T Ltd. (00999.HK) said its six-month revenue rose 7.4 percent from a year earlier to HK$3.64 billion, helping the firm to swing back to profit, at HK$39.1 million.

However, the loss of its Hong Kong unit widened to HK$140 million in the period, compared with HK$91.37 million the year before.

Despite offering deep discounts, sales in Hong Kong fell 2 percent.

The company’s turnaround is entirely due to better performances in mainland China and Japan markets.

I.T.’s China unit posted 12 percent growth in revenue and 4.6 percent rise in profit in the period, while the Japan market yielded 47 percent and 53 percent gains in revenue and profit respectively.

Company executives said a new line of products from A Bathing Ape, a Japanese brand it acquired five years ago, underpinned sales in Japan.

Meanwhile, cosmetics retailer Sa Sa International Holdings (00178.HK) said its retail sales soared 13.8 percent during Oct 1-7, when mainland Chinese people had a week-long National Day holiday.

However, the sales gain was due primarily to low base in same period of last year.

Moreover, starting from this month, consumption tax for non-luxury cosmetic products in China will be removed, and tax for high-end cosmetic products slashed from 30 percent to 15 percent.

The change is expected to pose a stiff challenge to Hong Kong retailers operating in the segment.

Kwok Siu-ming, founder of Sa Sa, admitted that the new policy has come out of blue and is a “headache” for Hong Kong’s cosmetic retailers.

While the strong results from I.T. and Sa Sa cannot be really taken as proof ofrecovery of their Hong Kong businesses, there are however some positive signs from the city’s commercial property market.

It’s said that there are fewer vacant shops in Hong Kong’s main shopping areas now, and that retailers are more willing to sign long-term leases. This suggests an improvement in business confidence.

This article appeared in the Hong Kong Economic Journal on Oct. 31

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist

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