The “golden era” of Hong Kong retail is over as Chinese tourists proceed to be more frugal with their money

Hong Kong's retail sector has been struggling for the reason that pandemic and analysts say it could take years to get well.

The city’s retail sales fell 7.3% in the primary seven months of the 12 months in comparison with 2023, in response to Government data released on Friday. And this despite a large 52.2% increase in visitor numbers in the course of the period.

The city was once hailed as a shopping paradise, especially for tourists from mainland China, who often emerged from luxury stores with multiple bags in hand. Mainland China accounted for nearly 90% of the HK$22.16 billion (US$2.84 billion) trade. issued by day visitors and 67% of the HK$119.1 billion spent by overnight visitors in 2023.

But analysts said the golden days wouldn’t return “for a very, very long time” as mainland Chinese tighten their belts amid economic uncertainty.

“The lower spending by middle-class Chinese tourists in Hong Kong can be attributed to the economic slowdown – triggered by the downturn in the property market, changing consumption habits, an increased focus on saving due to difficult employment prospects and changing travel preferences,” said Christine Li, head of research for Asia Pacific at Knight Frank.

In 2023, overnight tourists from the mainland spent 6,495 Hong Kong dollars (US$833)) per capita, a rise of 8.4% from 2019. However, same-day spending by Chinese visitors fell by 37% to simply HK$1,383 in 2023.

“Post-Covid, mainland Chinese consumers are placing more value on experiences than on material goods, driven by a desire to reconnect, make up for lost time and live in the here and now,” Li said. “This shift in values ​​has led to weaker sales in the high-end luxury goods sector, which is particularly noticeable in Chinese consumer spending.”

Concerns in regards to the economic situation on the mainland have also affected the best way money is spent elsewhere. Analysts pointed to the recognition of “zero-dollar” tours, where travelers pay up front for transportation, accommodation and meals. Tourists on a budget may not spend way more than the prepaid expenses covered in these packages.

“They're taking photos for their online accounts, but they're not spending money. They're not spending as much money in shops or restaurants as they used to,” Simon Smith, Savills' regional research and advisory director for Asia Pacific, told CNBC. “The golden era for Hong Kong's retail market is over. That's the reality.”

Data from the Hong Kong Tourism Board showed that the town welcomed 34 million tourists last 12 monthsincluding 26.8 million from the mainland. This is a big decrease in comparison with 55.91 million arrivals from overseas in 2019Of these, 43.77 million come from mainland China.

Smith noted that even Hong Kong residents are increasingly shopping in neighboring Shenzhen, just 14 minutes away by high-speed rail.

“It's a third of the price in Shenzhen. You get great food, good service and modern shopping malls,” Smith said, adding that many young professionals – often the largest shoppers – have emigrated from Hong Kong.

Even wealthy Chinese have in the reduction of on spending on luxury goods during their visits to Hong Kong, said Li of Knight Frank.

“The decline in mainland Chinese tourists' spending on luxury goods has had a profound impact on Hong Kong's retail sector. Hong Kong's retail sector, which was heavily dependent on luxury purchases such as watches, handbags and jewelry by mainland Chinese tourists, faced significant challenges,” she said.

“Hong Kong is unfortunately going through some difficult adjustment processes and tourists and locals now have a very different mindset,” Nick Bradstreet, head of Asia Pacific retail at Savills, told CNBC.

Although analysts imagine that it would take a protracted time for consumer confidence in China to get well, there may be hope that Hong Kong's retail sector could get well. However, the main target would wish to shift away from luxury consumption.

“The focus is shifting from luxury items to creating engaging and memorable shopping experiences that resonate with a wider range of consumers,” Li said, adding that a recovery is “doable.”

Henry Chin, head of Asia-Pacific research at CBRE, was more optimistic about China's retail recovery, but warned that it “will take longer than what we have seen in past cycles” as a result of the present economic downturn and structural challenges in China.