Hong Kong's retail sales in July slumped 11.4% year over year by value to HK$34.4 billion, showing for the first time the full impact of the prolonged anti-extradition bill protests on the sector.
The luxury category was the hardest hit with a 24.4% fall in the sales of jewelry, watches, clocks and valuable gifts, according to figures released Aug. 30 by the Hong Kong government. Categories catering to tourists have been particularly affected, including apparel, medicine and cosmetics, commodities in departmental stores, as well as footwear and accessories, which all reported double-digit declines. It follows a 6.7% decrease in retail sales in June.

Annie Yau Tse, chairperson of the Hong Kong Retail Management Association, warned that the sales figures in August could be even worse as they will cover the period when the protests escalated to an unprecedented scale, resulting in a mass strike and occupations of the airport that caused flight cancellations for three days.
"Our members who operate in tourist hotspots said their sales slowed by 50% or more. Even those in areas not affected by the protest also reported around [a] 20% drop in their businesses," Tse said during an Aug. 30 call with reporters.
The protests have entered their 82nd day, longer than the pro-democracy demonstrations in 2014, and show little sign of abating. Prominent political activist Joshua Wong and five others were arrested Aug. 30, and the police have denied a permit for a rally planned for Aug. 31. The Beijing central government rejected Hong Kong chief executive Carrie Lam's suggestion to withdraw the extradition bill, one of the key demands of the protesters, Reuters reported Aug. 30.
Iris Pang, ING's Greater China economist who had earlier estimated a 15.6% drop in sales for July, said the declines could continue in the coming months. It is the worst period for retail sales since a 20.6% slump in February 2016 when the Chinese government was in the full swing of an austerity crackdown.
Luxury groups from Kering SA to Tiffany & Co. have warned that their sales and earnings could be impacted by the ongoing unrest in Hong Kong, a city known as a shopping haven for mainland tourists.
"So far, I haven't seen any remedy that could stop this negative growth," Pang said in an interview.

Pang pointed out that the retail figures do not show the full fallout from the protests as the services and hospitality sectors have also been hit by dwindling tourist numbers. A number of countries, including the U.S. and Singapore, have issued travel advisory warnings for Hong Kong.
Pascal Martin, partner at OC&C Strategy Consultants, said such warnings could definitely deter tourists from visiting Hong Kong, even though it is business as usual for people who live and work in the city.
Martin described the situation as a serious crisis for retailers, especially among the luxury groups, which have been reliant on the flow of mainland tourists. Martin said the situation in Hong Kong is unique, as many luxury brands have a higher number of stores there compared to other cities in the world.
"I don't know to what extent the Chinese government is also restricting the number of authorizations for Chinese people to visit Hong Kong, as they used to do in Taiwan. This may have an impact as well," Martin said in an interview.
"Now we are in 2019, we are getting closer to 2047, sort of a natural deadline [the end of the "one country, two system" arrangement between Hong Kong and China.] Maybe for people in Hong Kong, there will be more and more anxiety about the deadline, therefore maybe increasing the frequency of these kinds of disruptions that affect retail," Martin added.
It does not help that Hong Kong has the highest property and rental prices in the world. Victoria's Secret is reportedly paying HK$7 million in monthly rent for its 51,200 square feet store at a prime lot in the Causeway Bay shopping district.
Martin said his luxury brands clients are engaged in negotiations with their commercial property landlords to adjust their leases. Similarly, the Hong Kong Retail Management Association issued a plea for commercial property landlords to halve rent for six months, although Tse said few landlords have offered significant relief to the retail tenants.
Simon Smith, Hong Kong-based senior director of research and consultancy for real estate business Savills, said he had personally not heard of any major restructuring of commercial property leases.
"It's a nice idea [to halve the rent], but it's a bit too early to be making dramatic revisions, except perhaps in very exceptional circumstances. I think many people want to wait longer to see if they are able to move on from this turbulent period," Smith said in an interview.
He believes that the situation in Hong Kong has yet to become severe, and there are other factors in play. "Retail sales had been falling prior to the extradition bill. A lot of that trade dispute focuses on [manufacturing] businesses in southern China [Guangdong province.] Many of Hong Kong's visitors are from southern China, so these are the people who are suddenly concerned about their wages, bonuses and job security as a result of the tariffs," said Smith.
Meanwhile, a report by real estate firm JLL published August said most retailers adopted a "wait-and-see" attitude towards expansion plans in light of the current political turmoil in Hong Kong. The report mentioned that Gap Inc. signed a lease for a 15,000-square-foot store on a monthly rent of HK$1.2 million in the prime shopping district Tsim Sha Tsui.
Longer term, however, it is possible that the luxury groups may want to review their store networks in Hong Kong, said Martin.
"A lot of people are thinking that the [unrest] could be long lasting, or maybe the next disruptions may happen with a higher frequency, and therefore may have more structural impact on the attractiveness of the Hong Kong market," said Martin.
Michael Cheng, PwC's Asia Pacific and Hong Kong/China consumer markets leader, said it is too early to sound the death knell on Hong Kong's future in luxury retail.
"Looking at the retail component in Hong Kong, luxury is still a very big sector for most of the multinational brands. Hong Kong has been a shopping haven without the sales taxes," Cheng said.
