Battered retail sector may recover in 2018 but outlook remains negative: Fitch

Tourist arrivals are recovering after a two-year decline.

The dark days of Hong Kong’s battered retail sector may soon come to an end as retail sales are slowly recovering to around 3% YoY growth as of July and tourist arrivals are stabilising after a two-year decline, according to credit rating agency Fitch. 

The protracted decline in tourism levels have dealt a blow to luxury retailers but sellers are seeing a gradual recovery in recent months. 

“Fitch believes the decline in luxury retail sales will be stabilised in 2018, partially due to a lower base,” the agency said in a statement but noted that it will continue to face pressure due to China’s impending economic slowdown and anti-corruption campaign.

Chinese tourists will continue to dominate tourist arrivals as Fitch notes that the consumption patterns have shifted away from big-ticket items to cheaper products.

Moreover, the credit agency pointed out that shopping malls stand a greater chance of weathering the retail downturn compared with traditional boutique shops as they have the ability to attract better traffic due to a more balanced tenant mix. 

“Fitch believes the rental income from tenants’ retail sales (turnover rent) may be stabilising amid the bottoming out of retail sales, although the turnover rent portion is insignificant relative to the fixed rent portion.” 

However, the overall outlook for the sector remains negative on expectations of slower sales due to lacklustre global growth.