May retail sales in Hong Kong continued to see falling demand – in the luxury segment in particular – as high-spending travellers such as Mainland Chinese tighten their purse strings.

While the value of total retail sales in May, provisionally estimated at HK$39bn/$5bn, edged down by -0.1% year-on-year, the value sales of jewellery, watches, clocks, and valuable gifts fell by -14.9% in May compared with May 2014.

The data from the Hong Kong government make grim reading for downtown retailers, including duty free operators like DFS Group, which are said to be smarting from the luxury blight that has taken hold in the Special Administrative Zone.

DFS did not respond to requests from TRBusiness for first quarter Chinese footfall data at its stores. But the government has spelled out the seriousness of the retail situation in relation to tourism.

In a statement it says: “The drag from the slowdown in tourist spending remained notable, as the sales of jewellery, watches, clocks, and valuable gifts continued to register a double-digit year-on-year decline. The near-term outlook for retail sales will still depend much on the performance of inbound tourism.”

That inbound tourism, at least from China, is looking fragile. As previously reported on TRBusiness.com, GfK data indicate that Hong Kong will see a -36% fall in PRC bookings from June to November versus 2014.

RETAIL RENTS RETREAT

One positive for retailers is that Hong Kong’s stratospheric rents have begun to fall in each of the city’s four major retail precincts, but only because some luxury brands are weighing up the value of renewing their leases.

Retail property group JLL says: “Lacklustre retail sales and fears of a recurrence of the Occupy Movement protests have moderated demand for street shops (and) landlords were willing to offer more accommodative rental terms in 1Q15.”

In the first five months of 2015, total retail sales dropped -1.8% in value but increased by +1.3% in volume suggesting that consumers are switching away from luxurious products and opening up opportunities for fast fashion and ‘aspirational luxury’ according to JLL’s Head of Retail HK, Tom Gaffney. Government data put the first quarter drop at -2.3% in terms of value while volumes were flat.