Hong Kong Retail Sector under Pressure: Multiple Companies’ IPO Reports Raise Alarm

Multiple Hong Kong-listed companies are sending out warning signals through their financial reports, indicating the pressure on the retail industry in Hong Kong. On one hand, mainland Chinese tourists have not resumed spending in Hong Kong, and on the other hand, Hong Kong residents are traveling abroad and consuming in Shenzhen, South China, and other areas.

On Monday, July 29th, Wharf Real Estate Investment Company (Wharf REIC) issued a profit warning, forecasting a net loss of not less than 900 million Hong Kong dollars ($115.4 million) for the first six months of 2024. In comparison, the company recorded a net profit of 1.8 billion Hong Kong dollars in 2023.

Wharf REIC, a longstanding property company in Hong Kong, is a listed company under the former Hong Kong conglomerate Hutchison’s banner, which was delisted in 2020.

Wharf REIC owns two major landmark shopping centers in Hong Kong – Harbour City and Times Square, both premium properties located in Hong Kong’s most popular shopping destinations and busiest commercial districts.

A subsidiary of Hutchison Group, Wharf REIC, said in an announcement on the Hong Kong Stock Exchange that retail sales in Hong Kong had failed to recover post the COVID (Chinese Communist Virus) pandemic.

Kevin C.Y. Hui, secretary of Wharf REIC, mentioned that the rebound in retail sales “stalled shortly after the reopening of borders in the first quarter of 2023” and that the situation began to deteriorate in 2024.

The company stated that the substantial losses in the first half of the year were primarily due to the revaluation decline in investment properties.

Another Hong Kong-listed subsidiary of Hutchison Group, Kowloon Development Group (which mainly holds the group’s mainland assets), also disclosed on Monday an expected net loss of 2.5 to 2.8 billion Hong Kong dollars for the first half, a significant drop from the 696 million Hong Kong dollars net profit in the same period last year.

The company attributed the losses to the revaluation of investment properties.

Moreover, several local Hong Kong retailers, including International Housewares Retail, 759 Store, and Sa Sa International, have expressed that the outflow of shoppers, including overseas travel and spending in northern destinations, is impacting local consumption.

International Housewares Retail, a household retail brand, announced a 44.34% year-on-year decline in net profit to 101 million Hong Kong dollars for the fiscal year ending in April. The company manages stores directly in Hong Kong, Singapore, and Macau, with franchises overseas.

According to the data released by the Japan Tourism Agency in July, Hong Kong travelers’ spending reached 8.9 billion Hong Kong dollars, an 85% increase compared to the same period last year.

On the 24th, the parent company of the retail chain store 759 Store, CEC International, released its annual performance, reporting a revenue of 1.47 billion Hong Kong dollars for the fiscal year ending April 30, 2024, a 13% drop compared to the previous year, resulting in a loss of 29.81 million Hong Kong dollars. 759 Store is going from profit to loss, with 13 stores set to close in the fiscal year 2024.

759 Store stated that the Hong Kong retail industry is facing multiple and unusual impacts, such as external factors like geopolitical risks, the Hong Kong dollar following the U.S. dollar into an interest rate hike cycle, and the downturn in the financial and real estate markets affecting local retail.

Furthermore, there is a growing trend of Hong Kong residents traveling abroad, leading to a reduction in local consumer spending when peak periods coincide with weekends and holidays. Additionally, the flow of people and spending in Hong Kong at night has not fully recovered to pre-pandemic levels.

Sa Sa International Holdings, a large retail chain specializing in cosmetics and beauty products, is facing a similar situation. The company reported a total operating revenue of 684.8 million Hong Kong dollars for the second quarter in Hong Kong and Macau.

In an announcement in early July, Sa Sa International mentioned that the continuous northbound travel trend on weekends had disrupted the recovery process.

Chairman and CEO of Sa Sa International, Simon Kwok, stated that during the spring of this year, Hong Kong residents either took short trips to South Korea and Japan or long-distance travels to Europe and beyond, resulting in the sales peak season during Easter being disrupted.

According to the latest retail industry data released by the Hong Kong government for May, the estimated temporary retail sales amounted to 30.5 billion Hong Kong dollars, an 11.7% year-on-year drop, lower than market expectations.

The Retail Management Association described the industry as facing a more severe environment than a cold winter, estimating that this situation would persist for some time.

The business of jewelry retailer, Chow Tai Fook Jewellery Group, has been severely impacted by new consumer trends.

Results from Chow Tai Fook Jewellery’s financial data for the first quarter of the fiscal year, disclosed on July 24, showed a 20% year-on-year drop in retail value for April to June this year, with a 19% decline in the mainland market and a 29% drop in the Hong Kong and Macau market.

The company mentioned that the number of northbound travelers seemed to have stabilized at the current level and had become a regular part of the business. Therefore, the rebound in company sales “depends on the increase in the number of mainland visitors,” a rebound that has not been as expected.

Furthermore, in the first half of 2024, Chow Tai Fook had shut down 180 jewelry stores in mainland China. This was related to the crisis in the mainland real estate market leading to a decline in household wealth and the continued downturn in the macroeconomic environment resulting in a sustained decrease in consumer purchasing power.

Zheng Jiachun, chairman of Chow Tai Fook, stated in documents submitted to the Hong Kong Stock Exchange, that “macro challenges continue to affect consumer spending,” with the high volatility in the gold price market having a negative impact.

“We have observed fluctuations in demand for gold jewelry this quarter, a phenomenon that is being witnessed across the industry,” he said.