Tue, Dec 03, 2019 - Page 10 News List

Hong Kong awaits ‘enormous’ retail hit

MAKE OR BREAK:Hong Kong Airlines is also battling, and must improve its financial situation by the end of this week, or aviation regulators plan to take away its licence

Bloomberg

Hong Kong is counting the economic cost of almost six months of political unrest, with the territory expected to post its first budget deficit since the early 2000s.

Hong Kong Financial Secretary Paul Chan (陳茂波) made the announcement to lawmakers yesterday, explaining that the ongoing turmoil has hurt economic growth by about 2 percentage points this year.

There is more bad news: Retail sales data for October due later yesterday would show a “very enormous” decline, Chan said.

Arrivals from China plunged 45.9 percent yesr-on-year in October, the biggest decline on record, meaning that the annual “Golden Week” holiday in China failed to translate into a tourist bump for local retailers.

Overall, visitors to Hong Kong fell almost 44 percent in the month.

For retail businesses, that raises the stakes for the coming months.

Many proprietors will have to make hard choices: whether to continue the fight into next year or give up as leases come up for renewal and employee bonuses must be paid.

Iris Pang (彭藹嬈), an economist with ING Bank NV in Hong Kong, sees a 70 percent chance of a wave of store closures among retailers if spending continues to be weak.

The situation is especially dire for catering companies, which typically enjoy brisk business during the holidays, but face the prospect of cancellations during periods of unrest.

“Make or break is the correct description for most catering businesses in Hong Kong as some of them have continued in the business just because their rental agreement has yet to be due,” Pang said. “It is very likely that many catering businesses will close their business if their revenue doesn’t make a comeback during this holiday.”

Hong Kong’s large retailers face a similar predicament.

Cosmetics retailer Sa Sa International Holdings Ltd (莎莎國際控股) could close about 30 stores next year depending on how the market shakes out and “the results of discussions with the owners on rent reduction,” the company said in an e-mailed statement.

Sa Sa shares have tumbled more than 40 percent this year.

Chow Tai Fook Jewellery Group Ltd (周大福珠寶) plans to cut costs by seeking bigger rent discounts, reducing advertising and reviewing store networks in Hong Kong and Macau, the company said in a Webcast, after reporting that first-half net income sank 21 percent.

The company has leases at more than 40 stores in Hong Kong and Macau expiring in the next fiscal year.

Hong Kong has been one of the world’s largest centers for sales of luxury watches, but it has taken a hammering this year. Swiss watch exports to mainland China surpassed those to Hong Kong for the first time in October.

“If the situation persists, by the end of the year many watch companies will have to shut down business,” Oriental Watch Holdings Ltd (東方表行) finance director Alain Lam (林慶麟) said. “At the end of the year, suppliers will ask for payment and employees will demand a one-month bonus — this may cut off the cash flow of some companies.”

Oriental Watch Holdings has managed to negotiate 8 to 10 percent discounts in rent from some landlords and would attempt to arrange better deals as leases come up, Lam said.

However, there is no guarantee the company can retain its significant presence in Hong Kong, as it has healthier operations elsewhere.

“If the numbers don’t work out, we will close stores,” he said. “We are shifting our strategic focus to mainland China, aggressively.”

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