First signs of a slowdown in retail market now rearing its ugly head

Growth will remain slow in 2014.

The first signs of a slowdown in Hong Kong’s retail market have begun to appear.

According to a research and forecast report from Colliers International on 2Q 2014, the number of mainland Chinese visitor arrivals fell by 1.6% year-on-year (YoY) during the Labour Day holiday in the first week of May, the first decline in 10 years.

This followed close on the heels of a 9.8% YoY drop in retail sales in April 2014.

The previous drop in 2009 was a short-term adjustment amidst the effects of the global financial crisis.

Here's more from Colliers International:

In the absence of any significant adverse factor this time, the latest retail sales figures for April reflected the impact of structural changes in the spending patterns of mainland Chinese visitors.

The three-month moving average (3MMA) of the value of total retail sales recorded a 5.2% YoY decline in May 2014 compared with a 9.8% YoY growth in January 2014. Meanwhile, the 3MMA retail sales of jewellery and valuable gifts slowed substantially to -26.5% YoY in April 2014 from 9.6% YoY in January 2014.

Sales of consumer durable goods, tapered to -9.6% YoY from 7.9% YoY during the same period.

The anti-extravagance rules introduced in mainland China deter the giving of luxury gifts and are partly to blame for the slowdown in the retail sales of luxury goods in Hong Kong.

The shift in consumption patterns from luxury goods towards mid-priced products such as daily necessities will continue.

The recent proposal of curbing visitor arrivals by setting a cap for multiple-entry-permit travelers, in order to prevent Hong Kong from becoming overcrowded, has yet to reach a conclusion and therefore the market’s overreaction is unnecessary.

Due to some headwinds, including the slowing expansion of China’s economy and weaker private domestic consumption, retail sales growth rate will remain stagnant this year.