Hong Kong retail pain to persist amid local spending ‘leakage’ while visitors splurge less

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Retail sales will remain under pressure this year after declining 6 per cent year on year in the first five months, S&P Global Ratings says

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Pedestrian crossing a road in Hong Kong’s Causeway Bay neighbourhood on July 2, 2024. Photo: Sam Tsang

Cheryl Arcibal

Published: 3:30pm, 8 Jul 2024Updated: 5:41pm, 8 Jul 2024

More pain is in store for Hong Kong’s retail market amid “structural changes” that have led to residents spending more overseas and online while the city attracts fewer mainland Chinese visitors who are splurging less than in previous years, according to S&P Global Ratings.

“We anticipate that Hong Kong’s retail sales will be under pressure this year, after declining 6 per cent year on year for the first five months,” the credit-rating agency said in a report titled “Hong Kong Property: Survival of the Fittest” on Monday.

“The weakness will span both ordinary and luxury spending. Even supermarket sales are a bit cautious. In our view, the malaise won’t be lifted overnight.”

The grim view of the segment arises partly from so-called leakage of spending by local residents. As of the end of June, outbound travel by the city’s population had exceeded 2018 levels on an annualised basis, the report said. Crossing the border into Shenzhen for shopping and dining at comparatively lower prices has also become more popular among local residents.

Meanwhile, online shopping is eating away at retailers’ revenues, as its share of total retail sales rose to 8.7 per cent in May, higher than the average of 8.1 per cent in 2020 to 2022.

At the same time, tourist arrivals have not fully recovered, and spending by same-day visitors from mainland China remains lower than in 2018, S&P said.