Retail sales growth to slip 10% amid global lull

High-end luxury products gained only 3.1% sales growth.

According to Colliers International, the growth of retail sales maintained its upward trend during 2Q 2012 but the pace slowed noticeably as the gloomy global economic outlook dampened consumer sentiment in spite of buoyant visitor arrivals.

Here's more from Colliers International:

In may 2012, the total value of retail sales slowed to single digit growth (8.8% YoY), which was the slowest pace since September 2009, excluding seasonal distortions in January and February each year caused by the timing of the lunar new Year. Looking ahead, negative shocks from the global economic slowdown and sustained inflation pose challenges for Hong Kong retailers. In view of the these challenges, retail sales growth is expected to slow to 8% - 10% for the full year of 2012.

Among different categories of retail sales in Hong Kong, the value of the sales of jewellery, watches and clocks, and valuable gifts was still comprising 22% of the total retail sales as of may 2012, given that high-end luxury products remained the most favoured item of mainland tourists due to quality assurance, tax differences and currency appreciation. However, the total value of sales of jewellery, watches and clocks, and valuable gifts gained only 3.1% YoY in may 2012 – the slowest growth rate since September 2009, as the contracting China economy dampened mainland visitors’ buying sentiment. Analysed by volume, sales of jewellery, watches and clocks, and valuable gifts recorded a year-on-year fall for the first time since June 2009, dropping 2.9% YoY as of may 2012.

Competition for retail spots in prime shopping areas was fierce as the demand far exceeded supply. For example, Puyi optical paid hk$2 million per month for a 1,200 sq ft ground-level shop at 54a -66 Canton road, tsim Sha tsui. The deal translated to an average price of hk$1,667 per sq ft per month. the 1,200 sq ft shop was previous occupied by Coloumix, a cosmetic retail chain, paying a monthly rent of hk$900,000.

Although local jewellery shops saw a slowdown in business revenue growth, individual local jewellery shops were still aggressively taking up space in prime retail locations to maximise their exposure to inbound tourists. For instance, Chow tai Fook Jewellery committed to lease 1,400 sq ft of retail premises in tsim Sha tsui that were previously occupied by 7-eleven, italy Station and ViP Watch & Jewellery for hk$2.6 million per month. However, considering that mainland Chinese visitors have tightened their belts amid slowing economic growth in China, the expansion pace of jewellery and watch shops is expected to slow down in the coming quarters.

The first-tier streets in hong kong’s prime shopping locations are occupied by overseas luxury and fashion brands where most affluent Chinese visitors are already familiar with. International retailers are also seeking retail space in the second-tier streets where shopper traffic is increasing due to the positive spill-over effect from the first-tier streets. Hence, individual local retailers have to relocate their shops to second- or third-tier streets due to limited stock available for lease and exorbitant retail rents. In view of ambitious expansion of retail brands, the sustained growth of the hong kong retail market will be constrained by the severe lack of sizable prime retail space to cater to the ever-rising number of international brands.