In January 2015, total retail sales value plunged 14.6% compared with a year earlier. It is the first double-digit decline in the first month of a year since 2002. Recently, the Euro has been depreciating as the US dollar strengthens against the background of potential interest-rate increases driven by an improving US economy. This is encouraging many luxury shoppers in Hong Kong to refocus their shopping activities in Europe. Meanwhile, with the changing social and economic conditions in Mainland China, Chinese visitors have become increasingly cautious and their consumption continued to shift towards mid-priced products, dragging down luxury sales in Hong Kong. In 2014, the retail sales value of “jewellery, watches and clocks, and valuable gifts” declined 13.7% year on year, the first drop since 2003. Prime retail rents started to be under downward pressure last year, with prime street shop rents losing 4.2% in 2014. Due to currency differences, there is a price difference of as high as 25% - 40% in Hong Kong when comparing with other countries. This will make a visible impact to Hong Kong retail sales.
Livian Har, Director, Head of Retail Services at Knight Frank, believes that many European luxury brands have already shifted their focus towards Asia. So in order to maintain sales growth in the Asian market, several brands have adjusted selling prices here to offset the exchange rate impact, raising price in Europe while lowering price in Asia, trying to balance the price difference between different markets and boost sales. She expects other luxury brands to offer similar discounts in the near future. However, for luxury watches and jewellery sector, price cut doesn’t come easy as the watches and jewellery are supposed to hold value. A sudden price cut will have a negative impact on their brands. Less impact will be seen on fast fashion brands.
In the short-term, Livian expects the price cut will stimulate the sales and help stabilising the prime retail market. In general she still expects retail rents to face downward pressure this year, and prime street shop rents may fall by 5%-10%.