It was considered to be the door to Asia for luxury goods. Moreover, to access China. Now Hong Kong risks to quickly go down a path endless decline. Not just a social decline, but rather a decline from the city that used to be the outpost of international luxury brands. The same luxury brands that have (often) managed their business in China from Hing Kong. The same luxury brands that could, gradually, move their base of operation outside of the old British colony. A forced revolution, which we have asked an opinion about from two analysts: Flavio Cereda of Jefferies and Luca Solca of Bernstein.
Cereda: “It’s a structural issue”
According to Flavio Cereda (Jeffries), “the city’s problem is structural”. While the city could go on a slow recovery, Hong Kong is in decline and, at the moment, in a recession”. Cereda has returned from Hong Kong a little while ago, and explains that the “real problem is the way in which the city has been managed in the last decades, resulting in one of the largest social injustice cases I have ever witnessed. Young people in Hong Kong know they aren’t going to have a bright future. At the same time, China knows that it can manage the Hong Kong risk via economic measures. Beijing knows it doesn’t need to bring the army in, and the business community knows it”.
The inevitable repercussions on the luxury market
The situation doesn’t leave much room for future changes. And it will bring further repercussions on the luxury market. “It is my opinion that – adds Mr. Cereda -, every brand will reduce its presence in the city within 3 to 4 years”. Considering that Hong Kong alone, until a few years ago, used to sell more than 5% of luxury items at a global level, this will be an important shift”. “25% of sales lost in Hong Kong will be picked up by China, while the rest will move to APAC (Asia Pacific countries) and London. They won’t be lsot”, adds Cereda, recalling how “70% of Hong Kong sales were attributed to tourists. E-Commerce could in part help the segment’s recovery within the city wall. But it won’t reverse the trend, as the local market is very small in comparison to global online sales’ numbers”.
Solca: “Double-digit drop”
Beijing will, indeed, be the one to gain ground from Hong Kong’s losses. Also, because a good part of tourists’ influx into cities comes from continental China. Mr. Luca Solca (Bernstein) believes so, and regarding the future of Hong Kong he explains to us how “it is reasonable to expect a double-digit drop in luxury sales. Statistics regarding hotel occupancy rate are also alarming”, and they know it. “I believe that the difference will be picked up by China for the most part, at least as far as soft luxury goes”.
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