Retail sales dropped 9.8% in March

Watch and jewellery sales are the biggest laggards.

The Census and Statistics Department recently announced retail sales statistics for March. Total retail sales in March recorded a 9.8% y-o-y drop, which brought a 12.5% y-o-y slash for Q1 2016.

According to a research note from CBRE, further, the double-digit decline was the steepest first quarter drop since 1999 (-13.7% y-o-y in Q1 1999), when Hong Kong was still in the aftermath of the Asian Financial Crisis. At the same time, tourist arrivals continued to decline in Q1 2016, down 11% y-o-y.

Breaking down retail sales by category, watch and jewellery sales continued to be the major laggard, falling by 23.2% y-o-y in Q1 2016. Sales of some local-oriented trades also registered decline.

Here’s more from CBRE:

This is mainly due to weaker local consumer confidence since the start of 2016, for diminishing wealth effect stemming from falling residential and stock prices; and rising concerns over job security as economic outlook turns more gloomy.

As such, sales of consumer durable goods (including mobile phones and electrical appliances) as well as clothing witnessed a strong 25.0% y-o-y and 10.6% y-o-y decline respectively during the period.

As we highlighted in our Q1 MarketView, retail rents fell by 5.4% q-o-q in Q1 2016 following a 17.3% y-o-y decline in 2015. However, the level of rental adjustment has not being able to offset disappointing retail sales, affecting retailers’ margins and hence rental affordability.

This is somehow supported by the fact that certain retailers have chosen to reduce their footprints and consolidate their resources to some of their leading shops.