Hong Kong’s Plummeting Retail Sales Put a Chill on Luxury Brands

Nearly four months after ongoing pro-democracy protests broke out in Hong Kong, the territory’s status as a global hub for luxury retail may be in jeopardy.

The clashes between police and demonstrators, which began as a dispute over a proposed extradition bill, have taken a toll on tourism, with the total number of visitors sinking nearly 40% in August to 3.59 million, according to data released this week by the Hong Kong Tourism Board. The bulk of this drop comes from visitors from mainland China, who have historically been a reliable source of income for high-end brands in Hong Kong, spending the majority of their travel budgets on shopping.

On Wednesday, the government reported the worst year-over-year decline in retail sales on record, with sales falling 23% in August. Among the sectors affected is luxury fashion, as analysts estimate that Hong Kong accounts for between 5 and 10% of global sales of luxury goods.

Brands like Prada and Louis Vuitton pay top dollar for real estate in Hong Kong’s glitzy Causeway Bay shopping district, which last year replaced New York City’s Fifth Avenue as the most expensive retail street in the world, according to the commercial real estate firm Cushman and Wakefield. Forced closures and spooked tourists, though, have put a damper on sales, with department store chain Sogo reporting a 37% decline in foot traffic during the first half of the year.

Overall department store sales dropped 29.9% in August, following a drop of 10.4% in July.

In late August, the Hong Kong Retail Management Association issued a letter urging landlords to cut rents in half for six months, though it’s unclear whether any have answered this call.

“Hong Kong is a disaster, like for everybody,” Miuccia Prada told Bloomberg in an interview following Tuesday’s Miu Miu runway show in Paris. Chanel last month indefinitely postponed its cruise collection, which was scheduled to be shown in Hong Kong on Nov. 6.

Luxury sales are surging in mainland China, as Beijing’s efforts to encourage domestic spending and curb the flow of untaxed foreign goods into the country appear to be paying off, but for some brands, the accompanying drop in tourist shopping dollars is hurting their bottom lines. In August, Tiffany & Co. executives warned that the Hong Kong uprisings could cut in to full-year sales if they continued, as territory is the brand’s fourth-largest market.

Protests have indeed raged on in the months since, and on Tuesday, an 18-year-old demonstrator was shot in the chest by a police officer, marking the first time a protestor has been shot with live ammunition during the months of unrest. The victim is reportedly in stable condition, but supporters crowded together in streets and shopping malls Wednesday to denounce the act of violence.

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