A street in Mong Kok is blocked with wooden boards, trash and bricks during the protest Protests in Hong Kong

It began as resistance to a proposed extradition bill, but quickly snowballed into a citywide reckoning over political freedoms and struggle over the identity of Hong Kong. The protests that kicked off in June have unfolded extraordinary scenes from a city that has long-prided itself on being a gleaming, safe and efficient business hub.

The protests turned malls and university campuses into fierce battle zones, jammed the city’s airport and its famously efficient metro system for days at a time, its marches at times drawing as many as two million protesters — or a quarter of the city’s eight million people. Incidents of violence from both pro-democracy protesters and Hong Kong’s police force have shocked the former British colony, with the protests claiming directly at least two lives. With hundreds arrested over the course of the last six months, Hong Kong has reached a level of political division that recent memory cannot recall.

This year’s purposefully leaderless social movement manifested in a much more mercurial manner and seemed to reach every district of Hong Kong at one point or another, in contrast to the Occupy protests in 2014, which had activists camping out in the street, more or less concentrating the effort to a few neighborhoods.

The social unrest has dealt a heavy blow to Hong Kong’s retail market, and the city overall. For the first time in a decade, official statistics showed that Hong Kong had entered into recession as its economy shrunk in the second and third quarters of the year.

In the first 10 months of 2019, the city’s retail sales fell 9 percent compared to the same period in 2018 and the deceleration is expected to reach the low double digits for the entire year.

The month of June witnessed a 6.7 percent drop in retail sales compared to the same time a year prior, widening steadily into the 24.3 percent decline marked in October. Hardest hit have been jewelry and watches, apparel and footwear, and department stores, which each fell 42.9 percent, 36.9 percent, and 31 percent respectively in October.

At this rate, the retail sector is expected to shed 5,600 jobs from the 270,000 retail workers it employs now, a Hong Kong Retail Management Association survey this month found.

Since June, 97 percent of retail companies have recorded losses, the industry group said, among which 90 percent said their losses were at a “moderate level or above,” while 57 percent said they had suffered “heavy losses.” The survey also predicted that 7,000 shops will close.

While stores were doing what they can to cut back on costs — asking staff to take unpaid leave, negotiating rental concessions from landlords, and shrinking the sizes of store networks — industry observers said they don’t see substantial relief coming anytime soon.

“Faced with the difficult operating environment, retailers are generally pessimistic about sales in the Christmas season and Lunar New Year,” the property broker Knight Frank said.

It added: “Given the severity of the situation, we forecast that the prime street shop rents will drop by at least another 15 percent in 2020.”

As a global shopping hub, it is not just small, independent retailers in the city trying to weather the storm. The unrest in Hong Kong could have a negative impact of between 0.6 and 1.2 percent on global luxury growth this year if the fourth quarter is as badly hit as August and September, Bernstein said in a recent research report. It estimated Hong Kong accounts for 5 to 10 percent of global luxury sales — in the higher end of the range for hard luxury, and in the lower end for soft luxury.

Bernstein said it assumed the sales decline in the third quarter was 50 percent in Hong Kong, and that there would be no change in the fourth quarter. Analysts estimate that Hong Kong accounts for around 6 percent of LVMH’s overall revenues.

LVMH saw a 25 percent drop in business in Hong Kong in the third quarter. Jean-Jacques Guiony, the group’s chief financial officer, said the loss in business would hit its profits, and its brands were in conversation with landlords to renegotiate their rent contracts in a bid to cut fixed costs in the blighted region. Nonetheless, he expressed confidence Hong Kong would eventually rebound.

“The 25 percent drop in Hong Kong in Q3 was a combination of a flattish month in July and around 40 percent drops in August and September, so definitely the trend has been worsening throughout the quarter,” added Guiony.

Alessandro Bogliolo, chief executive officer of Tiffany & Co., which is closed to being acquired by LVMH for $16.2 billion, commented that the American jeweler’s “sales in Hong Kong are significantly down compared to last year. It’s a double-digit decrease.”

Kering said “a combination of high comps, repatriation of Chinese demand and, more recently, some disruption in Hong Kong” impacted its second-half results.

Capri Holdings said protests in Hong Kong have had “a material impact” on the Versace business in the region. John D. Idol, its chairman and ceo of Capri, said, “We’ve taken a very, very conservative point of view across the whole company for Hong Kong while we hope that the situation gets resolved. We don’t see any end in sight. We don’t know what that means.”

Tapestry ceo Jide Zeitlin called the protests “a real issue.” In Hong Kong, Coach comps were down roughly 50 percent in September (35 percent for the entire quarter), because of the issues in the region.

Meanwhile, Chanel moved its 2019 cruise show from Hong Kong to Paris.

Shopping revenues in the city are reliant on visitors, who comprise 30 percent of sales, according to KPMG. Year over year, those tourist numbers to Hong Kong have dropped – 4.8 percent in July, 39.1 percent in August, 34.2 percent in September, and 43.7 percent in October.

However, despite the unrest, Hong Kong still topped the list of most visited cities, in terms of the actual number of international arrivals, according to a report from Euromonitor International.

Rabia Yasmeen, senior analyst and project lead for travel at Euromonitor, said, “Hong Kong continues to lead the city arrivals globally despite the political unrest and protests which lead to a sharp decline in the number of visitor arrivals in 2019.”

But the anti-Beijing sentiment in the protests has deterred a significant number of the most lucrative shopping-intensive visitors that Mainland Chinese tourists have long provided. While the international terminal of the airport seemed busy, there were quiet scenes at the West Kowloon high-speed train station connecting Hong Kong and mainland China, with trains arriving at the station mostly empty on a recent day.

The city is set to enter 2020 with a stalemate, although in November, protester anger was ameliorated somewhat by the results of the local district elections. Nearly three million people voted, equivalent to 71 percent of registered voters, a record turnout in the electoral history of Hong Kong. The city’s pro-democracy camp walked away with a landslide victory, gaining control of 17 of the 18 councils in Hong Kong, and tripling their seats from 124 to 388. However, the city’s legislature, by design, is still controlled by Beijing loyalists and the city is still unable to directly elect a chief executive, its top leader.

Given the populace’s grievances against local leadership and Beijing have taken decades to stew, it’s unrealistic for these issues to be resolved in any short amount of time. The questions are how quickly the city can bounce back should the protests recede, and secondly, whether Hong Kong’s image as a shopping destination has been permanently impaired.

Bohan Qiu, founder of the fashion consultancy BOH Project, who lived in Hong Kong for seven years, and recently relocated to Shanghai, is optimistic the situation in Hong Kong will calm down gradually and shoppers will return, because of its practical proximity to Mainland China and because it still holds a price advantage for many goods.

But Qiu underscored the seriousness of the political divide.

“This shadow cast on people from Hong Kong and Mainland China will linger on for a long period of time,” he said. “Under different social systems, the fundamental values of the Hong Kong people and the Mainland [Chinese] people are becoming more and more divided. It has come to the point that they can’t understand each other anymore.”

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