Hong Kong’s big­gest re­tail ri­val is on its doorstep

Business Mirror - - OPINION - By Daniela Wei and Jill Mao | Bloomberg View

LUX­URYWATCH re­tailer Halewin­ner will al­most dou­ble its store count in the Chi­nese gam­bling hub of Ma­cau, where casi­nos want time to be ir­rel­e­vant, deal­ing another blow to Hong Kong’s stag­ger­ing re­tail mar­ket.

Halewin­ner Watches Group will open at least nine more shops in Ma­cau while clos­ing two in Hong Kong, Chair­man Kar­son Choi said in an in­ter­view. Most of the new stores will be in the Co­tai Strip, where Sands China Ltd. will open its Parisian re­sort this year and Wynn Ma­cau Ltd. will de­but the Wynn Palace.

“This year we’re still go­ing ahead with our ma­jor ex­pan­sion plan,” said Choi, son of bil­lion­aire Fran­cis Choi. “That plan is in Ma­cau.”

The penin­sula, home to the world’s big­gest gam­bling cen­ter, is try­ing to di­ver­sify its im­age by wel­com­ing lux­ury-brand shoppers. That ef­fort is help­ing siphon big spenders from Hong Kong, where the num­ber of vis­i­tors from China dropped for nine straight months and re­tail sales in Fe­bru­ary plunged the most in 17 years.

The out­look isn’t any bet­ter for next week’s La­bor Day hol­i­day, with the Hong Kong Travel In­dus­try Coun­cil es­ti­mat­ing the num­ber of pack­age-tour trav­el­ers will drop by 50 per­cent. The tour-group vis­i­tor count, which mostly con­sists of Chi­nese tourists from the main­land, plunged 60 per­cent in the first quar­ter from a year be­fore.

“We don’t see any re­cov­ery signs in the up­com­ing La­bor Day hol­i­day,” said Joseph Tung, the coun­cil’s ex­ec­u­tive di­rec­tor.

The gloom en­gulfed even Ap­ple Inc., with sales for Greater China plung­ing 26 per­cent in the quar­ter end­ing March 30.

“The vast ma­jor­ity of the weak­ness in the Greater China re­gion sits in Hong Kong,” Chief Ex­ec­u­tive Of­fi­cer Tim Cook said dur­ing an April 26 call with an­a­lysts. One rea­son he cited is the lo­cal cur­rency’s peg to the stronger US dol­lar. “That has driven tourism, in­ter­na­tional shopping and trad­ing down sig­nif­i­cantly com­pared to what it was in the year ago,” Cook said.

Lux­ury hand­bag and fash­ion re­tail­ers also are tak­ing hits in the city. Burberry Group Plc. sales in Hong Kong fell more than 20 per­cent for a third straight quar­ter, and the com­pany is seek­ing to re­duce its lo­cal rent pay­ments.

Prada SpA, which held Hong Kong’s big­gest ini­tial pub­lic of­fer­ing in 2011, re­ported sales in Asia fell 16 per­cent last year.

“The near-term out­look for re­tail sales will still be con­strained by the weak in­bound tourism per­for­mance and un­cer­tain eco­nomic prospects,” the Hong Kong gov­ern­ment said af­ter re­tail statis­tics were re­leased in late March.

Lux­ury watches

CHOI’S fa­ther is bil­lion­aire Fran­cis Choi, whose Early Light In­dus­trial Co. Ltd. makes toys for more than 30 brands, in­clud­ing Mat­tel, Has­bro, Dis­ney and Wow Wee. Early Light also owns prop­er­ties in Hong Kong and is mov­ing into con­sumer elec­tron­ics and med­i­cal prod­ucts to help in­crease profit mar­gins, the younger Choi, 30, said.

Halewin­ner out­lets sell watches from more than 40 brands, in­clud­ing a $200,000 Jaeger-LeCoul­tre and a $180,000 Blanc­pain. Dur­ing an April 20 in­ter­view at a Halewin­ner out­let in Cause­way Bay, Hong Kong’s pre­mier re­tail dis­trict, Choi wore a steel Aude­mars Piguet Royal Oak time­piece priced at $21,000. The fam­ily ac­quired the watch re­tailer in 2010, when it had just seven stores. Now it has more than 30 out­lets in Hong Kong, Ma­cau and main­land China. Sales at its Hong Kong stores dropped 30 per­cent last year, amid China’s eco­nomic slow­down, a gov­ern­ment an­ti­cor­rup­tion cam­paign and protests by Hong Kong res­i­dents claim­ing the city caters to wealthy main­land vis­i­tors at their ex­pense.

Zhou Guo­liang, 54, a gen­eral man­ager in the elec­tron­ics in­dus­try from Shanghai, and his wife rarely visit Hong Kong nowa­days partly be­cause of so­cial ten­sions.

“I heard Hong Kong peo­ple in­sult Chi­nese,” Zhou said. “We come to bring con­sump­tion, and you should be nice and guide vis­i­tors.”

So he’s tak­ing his money to Ma­cau, where he va­ca­tions three to four times a year. Zhou once bought a $7,000 Omega watch and a $6,000 necklace from Chow Sang Sang Hold­ings In­ter­na­tional with his win­nings in Ma­cau, al­though he ob­served the watches are slightly pricier in the Por­tuguese city.

“Peo­ple who gam­ble in Ma­cau go there par­tic­u­larly for amuse­ment and fun ,” Zhou said. “I wouldn’t save the money to bring it back home.”

Swiss watch ex­ports to Hong Kong in March fell 38 per­cent from a year ago, the most among ma­jor mar­kets, ac­cord­ing to the Fed­er­a­tion of the Swiss Watch In­dus­try.

Chow Tai Fook Jew­ellery Group Ltd., the world’s largest listed jew­elry chain, and Sa Sa In­ter­na­tional Hold­ings Ltd. re­ported slump­ing sales dur­ing the Lu­nar New Year hol­i­day in Fe­bru­ary, when the num­ber of main­land Chi­nese tourists to Hong Kong dropped by 26 per­cent from a year ear­lier.

Shares of Chow Tai Fook Jew­ellery have dropped 44 per­cent from a year ago, while com­peti­tor Chow Sang Sang Hold­ings In­ter­na­tional has de­clined 30 per­cent. The bench­mark Hang Seng In­dex is down 26 per­cent from a year ear­lier.

China’s eco­nomic slow­down and an­ti­cor­rup­tion ef­forts also af­fect Ma­cau and its $30- bil­lion casino in­dus­try, yet there are signs the mar­ket has hit bot­tom. Vis­i­tor to­tals for the for­mer Por­tuguese colony rose 4.2 per­cent last month, and a flood of new projects like the Bat­man Ride tar­gets tourists and fam­i­lies.

“Re­tail­ers are still will­ing to ex­pand in Ma­cau be­cause Chi­nese vis­i­tors will con­tinue to come and play in the gam­ing hub,” said Michael Cheng, Asia Pa­cific and Hong Kong/ China re­tail & con­sumer part­ner at Price­wa­ter­house­Coop­ers Llp.

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