For years, Hong Kong has been the preferred destination for wealthy Chinese to purchase luxury handbags and watches. However, with the slowdown in the Chinese economy and job market, as well as a sluggish real estate market, people’s purchasing power has significantly declined. As a result, luxury shopping centers in Hong Kong are no longer bustling, and some operators believe that the luxury goods market in Hong Kong may never fully recover.
In Tsim Sha Tsui, Hong Kong, the neoclassical 1881 Heritage luxury shopping center, which used to attract many Chinese visitors, is now deserted with few brands. According to Bloomberg, this shopping center owned by Hong Kong billionaire Li Ka-shing has over 30 units, but only 3 are occupied by tenants. The gallery-style courtyard of the mall is also empty.
Furthermore, on Russell Street in Causeway Bay, a Transformers-themed fast-food restaurant has replaced a Burberry store. A real estate broker familiar with the transaction revealed to Bloomberg that the rent for the restaurant is 89% lower than that of the British fashion brand.
The collapse of high-end Chinese consumption has shaken global investors’ confidence in luxury brands, leading to significant sales declines for many high-end brands in China, including LVMH, L’Oreal, Versace, and Richemont.
Edwin Lee, founder of Sang Hio Real Estate Funds Management, said, “Hong Kong’s luxury goods market was once a paradise, but now it has fallen into an abyss.” He told Bloomberg, “The days when tourists used to buy luxury goods in Hong Kong without hesitation are gone.”
Lee expressed doubt that the luxury goods market may never fully regain its former glory. He remarked, “Don’t expect to return to the situation of 2013 and 2014. It may take four to five years to return to the levels seen in 2018 and 2019.”
By the end of June, Lee’s fund managed around HK$1.4 billion in retail property assets, which had declined by 9.7% in value over three years. This has dampened investor sentiment, with some looking to exit early, adding pressure to sell fund properties for cash.
Official data shows that compared to before the pandemic, the number of Chinese visitors to Hong Kong has decreased, with their average spending only half of what it used to be. Luxury goods sales in the first seven months of this year were 42% lower than the levels seen in 2018.
The downturn in consumption and store closures have deepened the sense of unease. Currently, Hong Kong’s property prices are at an eight-year low, office building vacancy rates are near historic highs, and the Hong Kong stock market is one of the worst-performing globally. The Hong Kong government’s crackdown on dissent has accelerated the emigration of young residents, further undermining international confidence in Hong Kong.
Last Friday, Hong Kong’s largest real estate developer and shopping center operator, New World Development Company Ltd., projected a record loss of up to HK$20 billion (approximately $2.6 billion) for the accounting year ending in June, marking the first annual loss in 20 years. The company’s stock has plummeted by 44% this year.
Gary Ng, senior economist at Natixis, expressed, “The decline of Hong Kong’s luxury industry is a sign of the current economic challenges, which will lead to an economic slowndown and job losses.”
“This means that the positive cycle of income growth, wealth effects, and corporate profits feeding back into consumption is no longer effective,” Ng told Bloomberg.
In fact, the struggles of the retail industry in Hong Kong are just a microcosm of the Chinese economy. In China, even sellers of low-end goods are facing difficulties, indicating that the downturn affecting Chinese consumers has cast a deep shadow over the economy.
At the end of August, Chinese online retailer Pinduoduo warned of declining profits and revenues, shocking investors and causing its stock price to plunge by 29%, a historic low.
China’s largest bottled water producer, Nongfu Spring, saw an 18.3% year-on-year revenue decline in the first half of the year, leading to a sharp drop in the company’s stock price and a total market value that dipped below HK$300 billion. Beijing’s Din Tai Fung also announced plans to gradually close 14 stores by October 31.
Xie Jinho, chairman of Taiwan’s Business Weekly Media Group, wrote on social media that the continued downturn of the Chinese economy and weak domestic consumption reflect the pressure faced by the market with a population of 1.4 billion people. The Chinese market, which was once a battleground for global brands, is now under comprehensive internal stress.