How Hong Kong’s luxury retail sector bears the brunt of changing consumer behaviour

Mainland tourists are now more inclined to seek ‘cultural tourism’ than shopping.

The retail sector in Hong Kong has seen a sharp decline in sales performance. According to a Knight Frank report, in April 2024, total retail sales value was HK$29.6 billion, down 14.7% YoY. 

This latest shortfall in retail sales indicates that Hong Kong is grappling with persistent challenges in low consumer confidence, waning competitiveness and changing tourism spending patterns. 

Here’s more from Knight Frank:

The value of total retail sales for the first four months of 2024 dropped by 4.7% from the same period in 2023, including a 7.8% YoY decline in sales of luxury goods to HK$18.2 billion. One of the primary reasons for this decline is the shifting spending habits and travel behaviour of mainland visitors, who comprise a significant portion of the city’s tourist base. 

These visitors are now more inclined to seek “cultural tourism” than traditional shopping activities. The strong Hong Kong dollar also hindered spending from visitors and is unfavourable for the local retail sector. 

The luxury retail sector, which used to pay the highest rents, is now facing the brunt of this downturn. Owing to the poor performance of luxury sales, luxury retailers have adjusted their presence and are not expected to expand further, so retail rents are expected to remain at a low level. 

Some Mainland F&B operators who were seeking opportunities to introduce their brands and test the market’s appetite have started to feel the pain. There were some cases of store closures and early surrenders for some Mainland F&B operators, which highlights the difficulties they have encountered when branching out into the city. 

According to a market source, LMM Hand Crushed Lemon Tea reportedly closed its ground floor store in Hang Lung Mansion, though its lease runs until April 2025. Four months after opening in Hong Kong, Radish Southward, a fast-food chain serving spicy Jiangxi food, closed its Dundas Square location. The brand had rented the 1,745 sq ft store for HK$250,000 a month until December 2026. 

Retail investment opportunities still depend on owners reducing prices to provide a satisfactory rental return for investors. Given the prevailing trend and the lack of retail momentum, we have a conservative outlook for retail sales performance in 2024, with a possible lower level than that in 2023. As the poor retail performance has cast a shadow on retail rental growth in the city, we expect overall retail rents to remain flat across the board for the remainder of 2024.