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Jewellery and luxury gift segments shine bright despite challenges in HK

Jewellery and luxury gift segments shine bright despite challenges in HK

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The outlook for consumer markets in Hong Kong this year remains challenging due to high global inflation, imminent rising interest rates, global economic uncertainty, and of course slowing consumption growth in China. While the pandemic has affected consumer sentiment, jewellery and luxury gifts segment still saw the fastest growth – up 27.3% during the pandemic because of consumers' strong desire to acquire luxury branded items as a way to hedge inflation and preserve wealth.

This happened despite Mainland China tourist numbers - the mainstay of luxury goods sales in recent years – slumping significantly amid the city’s border closure (only 65,721 Mainland China visitors during the year).

In 2022, PwC expects the jewellery and luxury sector will also continue to revive, on the back of pent-up demand for jewellery and gold products for weddings when the pandemic situation eases, as well as the need for inflation hedge and wealth preservation.

The next two fastest growing segments were clothing and footwear (+21.3%), electrical goods and other consumer durable goods (+19%). Sales in department stores suffered a drop of 3.3%, and supermarkets were down 8.4% from a high base in 2020, which was driven by higher-than-usual supermarket shopping because of the milder pandemic situation back then.

Michael Cheng, PwC Asia Pacific, Mainland China and Hong Kong consumer markets leader said, there are various factors affecting Hong Kong’s retail industry, including but not limited to wealth impact on consumption, employee’s disposal income and reopen of borders. Under the low base of 2020, the re-bounce of 2022 retail sales is expected to be slightly worse than 2021.

With the fifth wave of the pandemic involving rapid spread of the Omicron variant, Hong Kong's economy is still full of uncertainties in the New Year. The government's 2021 electronic consumption voucher scheme has boosted consumer sentiment and encouraged the public to spend in local retail sector, moderately cushioning the impacts on Hong Kong's retail sector.

“We expect a repeat of the consumption voucher scheme by the HKSAR Government in the year of assessment 2022/23 for an amount of no less than half the previous rounds,” said Cheng.

Overall, Hong Kong retail sales is forecasted to increase by 7% in 2022, to approximately HK$378 billion, based on the assumption that border will reopen between Mainland China and Hong Kong for three to four months between the third and fourth quarter. 

Cheng added, “Looking ahead, the city's retail sales will still be primarily driven by local consumers this year. The COVID-19 situation in Hong Kong has been relatively stable for most of 2021, but due to the recent outbreak of the Omicron variant, Hong Kong continues to impose strict travel restrictions on tourists. The timeline for the complete reopening of borders is still very much uncertain.”

Cheng added that the retail sector will recover from the pandemic. In addition, with several international sports events being held this year, including Beijing’s Winter Olympic Games in February and the FIFA World Cup Qatar 2022 in November and December, and rising health awareness since the outbreak of COVID-19, PwC expect that the consumption of sports goods and clothing will increase.

The commercial leasing market has also shown recent signs of revival as consumer sentiment and business confidence have been gradually improving. Short-term leasing continues to digest the supply of some vacant shops or surrendered spaces - this resulted in a slight improvement in the occupancy rate of shops in the core areas. Vacancies in the five core consumption areas - Central, Wan Chai, Causeway Bay, Tsim Sha Tsui and Mong Kok - continued to improve. Out of these, Causeway Bay, home to most retail and entertainment spots, has the highest shop occupancy rate. Some vacant or surrendered spaces in core locations, especially for F&B, groceries, athleisure brands and pop-up stores, have been slowly absorbed over recent months. With gradual improvement in retail leasing, PwC expects average leasing rent will improve by no more than 10%.

Total value of online retail sales in 2021 accounted for 8.1% of retail sales – an increase of 39% year-on-year. Online retail sales will continue to grow as the government tightens social distancing measures in recent months. Since the outbreak of COVID-19, online shopping has become more common. Hong Kong retailers have increased their investment in digital infrastructure and are committed to improving their online sales platforms. PwC expects online retail sales to continue to grow in 2022.

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