Northwest Arkansas Democrat-Gazette
Protests in Hong Kong biting into retail sales
For Anna Lee, shopping in Hong Kong isn’t the carefree experience it used to be.
The 21-year-old student from the southern Chinese city of Shenzhen used to travel over the border every fortnight to buy everything from cosmetics to branded clothing. This summer, she’s gone only once “because my classmate begged me to.” She was afraid of encountering the protests that have convulsed Hong Kong for more than a month.
Lee’s anxiety is a worrying sign for the consumer brands and luxury retailers that have come to depend on Hong Kong as a top destination for millions of shoppers from the Chinese mainland every year.
What began as a protest over a contentious law has become a movement against China’s grip over the former British colony. Demonstrations have spread throughout Hong Kong, with key shopping areas blocked by barricades at times. Retail sales fell more than expected in June and storekeepers say tourist numbers dropped as much as 50% last month. Global brands from Levi Strauss & Co. to Ralph Lauren Corp. and Prada SpA are flagging slipping sales as the protests — which show no sign of letting up — force
some stores to shut.
“Hong Kong has been challenging,” Andre Hoffmann, vice chairman at L’Occitane International SA, said on a call with analysts last week. “We lost several trading days in the quarter due to the protests. Chinese tourists spending in our shops has declined — all these are a bad cocktail for our business.”
The cosmetics retailer, which counts Hong Kong as its fourth-biggest global market, saw sales in the city down 19% in the second quarter. Prada had a similar story last week when the Italian fashion house reported first-half earnings, saying the political unrest in Hong Kong dragged on sales, even as mainland China showed gains.
It’s a theme that may become more significant, with a number of the world’s leading luxury and consumer names only reporting results through June, before clashes between police and protesters really intensified. Perched on a peninsula a short train ride away from Guangdong, China’s mostpopulous province, Hong Kong has long been both a gateway to China and a popular getaway for its rising consumer class.
L’Occitane and Prada — iconic European brands — are listed in the city. Hong Kong is the top export market for Swiss watches, and both Richemont, the owner of Cartier, and the Swatch Group AG have said the unrest there has weighed on sales due to store closures and lower tourist arrivals.
While China’s heavily controlled media has been selective in reporting on the demonstrations, there was a flood of anti-protest coverage after the country’s liaison office in Hong Kong was vandalized. The city is a key transport hub and stopover location for the Asian region, but mainland China is by far its biggest source of visitors.
Levi’s experienced the protest chaos firsthand after the jeans maker scheduled a board meeting in China and Hong Kong in June.
“We were a day away from pulling the plug on the board meeting,” Chief Executive Officer Chip Bergh told Bloomberg. “We decided to go through with it because we were staying in Kowloon, which was on the other side of the bay.”
Initially around the area known as Central, the protests have since spread, with demonstrators storming the city legislature and holding sit-ins at the airport. Levi’s hasn’t been able to open some stores as normal, and tourism, in particular from China, is “way down,” Bergh said.
Hugo Boss AG has already closed a store at the airport and another in one of Hong Kong’s malls.
“The protests are not helpful,” Chief Financial Officer Yves Mueller said on a call recently, after Hugo Boss reported earnings. “Overall, our business in Hong Kong at this time is not contributing as positively as mainland China does.”
Ralph Lauren has three shops in close proximity to the main protest areas, and CEO Patrice Louvet said they were affecting the preppy fashion brand’s business in Hong Kong. Even Macau, the gambling enclave a short ferry-ride away, is seeing an impact, with analysts pinning an unexpected drop in casinos’ July gambling revenue partially on the protests.