As the Chinese New Year looms Monday, retailers in Hong Kong and Mainland China are gearing up for one of their busiest shopping seasons of the year. While malls and stores are currently buzzing with activity, the outlook for retail is somewhat mixed against a backdrop of economic uncertainty.
Although official sales figures are being tallied up, there are some indications that Christmas sales in Hong Kong for some retailers weren’t as strong as expected. That may or may not bode well for Chinese New Year, which is unusually close to Christmas in 2012. The close timing of the two megaholidays is a bit of a challenge for Hong Kong retailers, as shoppers might concentrate their spending on one of the two holidays.
As for Mainland China, analysts predict sales still will be strong. However, they issued warnings that growing concern, especially among the country’s middle class, about inflation and rising property prices in major cities like Beijing and Shanghai could have at least a moderate impact on consumer confidence. Worries about the economic woes of the West, which have hurt China’s countless export-reliant manufacturers, could also lead to slightly tighter purse strings this year.
“We are a little bit cautious this year,” said James Roy, a senior analyst with the Shanghai-based China Market Research Group. “There is obviously still going to be growth, but I think there will be a bit of a slowdown compared to previous years. Each year, when there is growth, you can still say it is a record year, but the pace is slowing.”
Roy said that, overall, consumers “are still very confident and optimistic” and plan to keep spending.
“We’re projecting 16 to 18 percent overall retail sales growth in 2012 and expect spending over the Chinese New Year season to grow in line with that trend,” he said.
Li Jie, a 29-year-old working in private equity in Beijing, is one of China’s increasingly cash-rich consumers. He ordered a new orange Renault SUV as a gift for himself for Chinese New Year.
“I still have the confidence I can earn more money, so that is the reason I want to buy a car,” he said, while at the same time expressing a certain level of concern about the country’s economic future and the government’s ability to control or counterbalance macroeconomic forces.
“We are living in maybe a golden time. We feel good because maybe we have not experienced the winter times,” he added. “I am worried about when the power of the central government can’t fight back the market power.”
The Lunar New Year holiday season is the high point for personal consumption and gift-giving in China. A significant percentage of China’s luxury retail dollars are spent offshore, with wealthy visitors to Hong Kong, Europe and America shopping up a storm to escape the Mainland’s prohibitive value-added tax on imported goods.
Isabel Cavill, a senior retail analyst with Planet Retail who specializes in the global clothing and luxury retail markets, estimates that 30 to 50 percent of luxury goods bought by Chinese consumers this year will be sold during the Spring Festival period, making it a make-or-break time for luxury brands.
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Winnie Cheng, project director at Ipsos, a market research firm in Hong Kong, has a less bullish outlook for Chinese New Year in Hong Kong, a key shopping destination for Mainland Chinese tourists.
“Christmas sales performance was not as good as expected even though many retailers offered promotions or discounts during that time. The outlook for the upcoming [Chinese New Year] is that we anticipate sales to be weaker than last year. The proximity of the two holiday seasons is one contributing factor, but also the current economic climate is affecting consumers’ purchasing intention,” she said.
That said, both Sun Hung Kai Properties and Harbour City, two of Hong Kong’s top mall operators, said they met or exceeded their expectations over the Christmas season.
Sun Hung Kai Properties, which manages 12 shopping malls in Hong Kong, has been courting Mainland Chinese shoppers, and it appears to be working.
In all, Sun Hung Kai Properties said its malls saw a total of 6.4 million in foot traffic during the Christmas shopping season, up 20 percent from a year ago, and sales turnover of 113 million Hong Kong dollars, or $14.4 million, up 22 percent from last year. For Chinese New Year, the group expects 7.8 million in traffic and sales of 168 million Hong Kong dollars, or $21.6 million.
While malls in Beijing and Shanghai have been teeming with thousands of shoppers taking advantage of deep discounts on everything from clothes to electronics in the run-up to next week’s holiday, retailers declined to issue any concrete forecasts for this year’s holiday season.
Sephora, H&M, Zara, Gucci, Piaget, Louis Vuitton and Hermès declined interview requests or did not respond to inquiries on how their stores in China are faring amid the frenzied consumerism
Traditionally in China, Lunar New Year is a time for big-ticket items like watches, jewelry, computers and cars. Companies give employees annual bonuses and people buy flashy items to give as presents to business associates or government officials to secure good relationships in the New Year.
But according to China Market Research’s Roy, more Chinese consumers are also investing in expensive items for their homes, such as furniture, bedding and decorations.
“There is a shift to spending on things more for homes, for personal comfort,” he said. “It is definitely the case that people are spending more and more.”
Jiang Qiong Er, who designs for Hermès’ Chinese luxury brand Shang Xia, said she is seeing a subtle yet apparent shift in consumer tastes when it comes to personal purchases or spending on gifts for Chinese New Year, with some consumers looking beyond storied Western luxury brands.
“The world will not change immediately from black to white,” Jiang said. “I think the majority of people, they are still like a few years before. It is just a small part of the people who are looking for something more than the Western brands can offer, but that does not mean they will give up what the Western brands offer.”
It is unclear how well Western brands, particularly those in the luxury category, are doing before the holiday. According to a study released by the consultancy Bain & Co. in December, luxury consumption on the Mainland was robust throughout 2011 but experienced a slight slowdown in the fourth quarter.
On a recent evening in Beijing’s high-end shopping complex Sanlitun North, stores ranging from Alexander McQueen and Marni to Juicy Couture and Balmain were virtually empty. A salesperson in a store selling Rolex and Tudor watches said business had increased by 10 percent in January, but she said that’s not saying much given the store normally has relatively few customers anyway.
In the older Sanlitun Village complex, which is adjacent to the newer North area, stores such as Nike, Mango and Apple — which was pelted with eggs by angry mobs last Friday waiting for the release of the iPhone 4S — were teeming with shoppers.
According to Giuseppe Oliveri, head of Asia-Pacific operations for Versace, which has a boutique in Sanlitun North, Chinese New Year sales have so far been “very, very strong.”
“If I had to describe 2011, the second semester of the year in Asia-Pacific, in China, has been much stronger than the first [half of the year],” he said, adding that the brand expects a second sales spurt from Chinese traveling abroad over the holiday.
Online shopping is also seeing a boost in sales over the holiday season, including the latter part of last year.
Thibault Villet, the head of China operations for Glamour Sales, an e-commerce site specializing in luxury goods, said spending in December was 30 percent higher than the same period the year before. Sales on Xiu.com, another site featuring luxury and fashion items, increased by 70 percent, the company said.