MARKET PULSE - Retail Sales Show Signs of Life


Two months of improving data suggest the decline in retail receipts may have run its course with surveys showing their best results since mid-2015

By Kenny Lau

Hong Kong’s monthly survey of retail receipts shows a sector that continues to contract, but at a far slower pace than at any stage in the past 20 months. After two consecutive monthly surveys showing the decline in the value of retail sales has moderated, there is a suggestion that this struggling sector may be positioned to rebound.

The survey of retail sales, released by the Hong Kong government’s Census and Statistics Department, found a 2.9-percent contraction in December which was the equal-smallest monthly downturn recorded last year. January’s decline was 0.9 percent in year-on-year terms and was the best result since May 2015.

However, the full-year data from the survey showed a contraction of 8.1 percent compared to 2015. It was the biggest percentage decrease in a calendar year since the Asian Financial Crisis. Total retail sales reached HK$436.6 billion last year, after a HK$475.1 billion result in 2015.

Those numbers reflect an extremely difficult retail market in the first half of last year and are the result of the worst retailing slump since 1999. The most recent data may signal that after 23 consecutive months of dipping sales, consumer spending is increasingly robust. In the fourth quarter, retail sales increased by 2.3 percent over the same period in 2015.

“2016 has been a challenging year for Hong Kong,” says Thomson Cheng, Chairman, Hong Kong Retail Management Association. “Despite strong headwinds, Hong Kong’s economy has proven to be more resilient than expected, with 1.9 percent GDP growth in the third quarter, which is better than the previous two quarters, and 1.5 percent economic growth forecast for the whole year.

“For the first ten months of 2016, the total retail sales decreased by 8.9 percent compared with a year ago. However, the retail industry observed the smallest decline of the year in October 2016 at 2.9 percent, mainly due to the improved tourist numbers that month,” Cheng says.

“The depreciation of the Renminbi has also led to a stronger Hong Kong dollar and it made Hong Kong less attractive in the eyes of Mainland tourists.”

Mixed results

The monthly survey is based on the sales receipts of local retail establishments and includes supermarkets and most discretionary spending but excludes housing, catering, medical and healthcare services, transport and communication, financial services, education and entertainment.

December saw a trend of improved consumer sentiment for some commodities. The value of sales of jewelry, watches and clocks, and valuable gifts – considered discretionary purchases and likely linked to festive season gift-giving – jumped by 2.3 percent year-on-year; receipts from supermarkets grew 0.7 percent; and spending on other seasonal items, such as alcoholic drinks, cosmetics and Chinese herbs, also saw strong growth.

In January’s data, released in early March, there is a similar pattern of mixed results and the influence of the Lunar New Year holiday. The value of sales at the supermarkets taking part in the survey increased by 5.4 percent over the same time last year. There were also better results from department stores (2.8 percent); for sales of food, alcoholic drinks and tobacco (9.9 percent); medicines and cosmetics (2.8 percent); footwear, clothing and accessories (4 percent); and optical shops (3.4 percent).

Consumers displayed restraint, however, on more substantial outlays in January. Sales receipts for electrical goods and photographic equipment fell by 24.4 percent, the biggest decline recorded in January’s survey. The value of sales of jewelry, watches, clocks and other valuable gifts decreased by 3.9 percent in year-on-year terms. Motor vehicles and automotive parts, furniture and other consumer durables were other categories with significant decreases.

Lifestyle-led recovery?

The run of contracting retail sales is mostly attributed to an ongoing decline in tourist arrivals from Mainland China and a reduction in their per capita spending over the past two years. At the same time, demand within Hong Kong is stable, and unemployment is low; these are factors that have acted to counter dipping sales.

The government says the near-term outlook for the retail sector depends largely on whether tourism arrivals increase – and that includes the flow of Mainland tourists – and how labor market conditions, global economic concerns and political uncertainties might evolve to influence consumer sentiment.

The trend in consumer spending on catering services is a different story. In contrast to declining retail sales of consumer goods, the value of restaurant receipts and purchases – comprising Chinese restaurants, non-Chinese restaurants, bars, fast-food chains and other eateries – have consistently grown by a few percentage points each month since the last quarter of 2015 and throughout all of last year.

In the fourth quarter of last year, the value of receipts in the restaurant sector reached HK$27.8 billion, an increase of about 4 percent over the same period a year earlier. When adjusted for inflation, the value of receipts grew by more than 1 percent. Purchases made by restaurants increased by 4 percent to HK$9.3 billion in the same period.

Of all the venues included in the survey, fast-food outlets were the fastest growing (a 7.4 percent increase in value, 3.7 percent growth in volume) and bars were ranked second (4.8 percent and 4.9 percent). Non-Chinese restaurants (4.5 percent and 2.5 percent), other eateries (4.8 percent and 1.8 percent) and Chinese restaurants (2.6 percent and a one-percent contraction) were the slowest growing market segments.

In an adjusted comparison netting the effect of the holiday season, the growth of Hong Kong restaurants was more vigorous in the final quarter than in the third, increasing by 1.4 percent in value and 0.6 percent in volume. The annual result came to HK$107.4 billion, an increase of 2.9 percent over 2015, but volume eased by 0.2 percent compared to the 2015 result.