DFS Chairman and CEO Philippe Schaus has said that the company is ‘very relaxed’ about the imminent Hong Kong Airport tender and believes that although there has been a deep dive in luxury good sales in the region, he is hopeful that the region may soon reach a plateau.

 

As extensively reported, Airport Authority Hong Kong (AAHK) was supposedly working towards November bids for its liquor and tobacco and general merchandise concessions, with perfume and cosmetics expected to be tendered separately in January 2017.

 

“We are very relaxed about the Hong Kong Airport bid,” Schaus told TRBusiness last week.

 

“The airport has decided to bid it out next year, they are working on the model, so we’ve been helping them and we’ve been giving advice. Let’s see what they come up with. At the end of the day, we are their partners and we are working with them accordingly…we are interested to see what happens.”

 

A DEPRESSED RETAIL MARKET IN HONG KONG

DFS waived its right to take up its three-year extensions for its separate Liquor and Tobacco, General Merchandise and Perfume & Cosmetics concessions at the airport.

 

It is no secret that Hong Kong’s retailers have certainly suffered from a drop in luxury goods sales in recent years and government data from the summer months continues to point to a depressed retail market.

 

 

July data (provided by the government) indicates that the value of total retail sales in Hong Kong fell by -7.7% to HK$34.6bn/$4.46bn, compared with July 2015. This means that for the first seven months of 2016, the value of total retail sales decreased by -10.1% compared with the same period in 2015.

 

The trend in department stores was slightly better: in July they fell by -6.9% and by -8.7% in the first seven months of the year.

 

However, according to the Hong Kong Airport authority (AAHK), HKIA has not caught the same cold as the downtown shop operators. In June, a spokesperson AAHK told TRBusiness that retail sales at the airport had ‘outperformed’ Hong Kong’s overall retail sales, both last year and at the start of 2016.

 

HKIA ‘OUTPERFORMED’ DOWNTOWN

“Together with continuous marketing promotion effort, HKIA retail sales outperformed Hong Kong overall retail sales during the year of 2015 and in the first quarter of 2016,” the airport operator told TRBusiness in June.

 

 

However, as has been well documented, core HKIA retailer DFS continues to face ‘challenges’, particularly in Macau and Hong Kong’ according to majority shareholder LVMH, in the first half of this year.

 

“Well I hope you don’t just get your information from the LVMH financial communication,” Schaus said to TRBusiness. “Just look at the Swiss Watch Federation’s communication every month; just look into that and you see exactly what’s happening.

 

“You see that, for instance, the watch sales in Hong Kong and Macau took a deep dive in the last few months versus what it was before, so there has been a reduction of luxury business in Hong Kong and Macau, irrespective of DFS.

 

“What was before the epicentre of the exuberant boom in Chinese luxury consumption has naturally been the epicentre of the post-exuberance evolution. It’s natural; whatever goes up the highest also has to come down the most. And that’s what we have seen.”

 

MACAU BUSINESS COMING BACK?

However, Schaus is confident that Hong Kong has seen the worst of the decline and that the trading environment is likely to start improving in the near future.

 

“We know that Hong Kong is still difficult and there are still political issues, but what we are seeing now is that [decline] is flattening off…And you see Macau starting to come back in many ways.

 

“We’ll see how it goes, but I think we are probably seeing that we have reached a kind of new level from which we can grow again.

 

“We don’t own the truth; we can only have our beliefs, so we do believe that Macau is coming back. But what we also believe is that what we have been doing in Macau is the right thing in terms of transformation of the offer – look at the City of Dreams for example.

 

“We do believe that the market is going to come back, or is coming back…Let’s see what happens in the next months and couple of years.”