Economic Update


Enduring the Cold Winter

While strolling around Central recently, I snapped up a few shirts for Chinese New Year. I may have got a bargain, but the exceptionally sweet deal makes me worry about the retail sector’s coming prospects.

Retail figures for 2015 have yet to be released, but recent trends give us a taste of what the overall picture may look like. Led by a remarkable slowdown in Chinese visitor arrivals (-15.5%YoY), total visitor arrivals dropped by -10.4%YoY in November. With the year-on-year decline now in its sixth month, it marks the longest streak since 1997/98 when the Asian financial crisis impacted most of Asia’s economies. Judging from the dwindled shopper traffic and unusually quiet shopping centres in December, 2015 is likely to see a year-on-year decline in visitor arrivals unparalleled since 2003, when the city was hit by SARS.

Retail sales also declined significantly (-7.8%YoY) in November, extending the year-on-year decline to nine consecutive months. Rubbing salts into retailers’ wounds is the unusually warm weather, which has impacted winter clothing sales. Academics Cachon and Swinney (2011) and Caro and Gallien (2012), among others, suggested that clothing retailers’ sales – in particular those in the fast-fashion industry – are highly sensitive to the selection they carry and their inventories. Retailers probably did not expect such a warm winter, so they may face more pressure to discount items so that they can clear their stock before spring arrives.

Looking ahead, the roller-coaster stock market will likely have a negative impact on consumer spending, too. As of 7 January, the total market capitalization of stocks on the main board of the Hong Kong Exchange dropped HK$1772billion in the first four trading days of 2016. The negative wealth effect from such falls will likely rein in and haunts the retail market as the traditional shopping season continues.

Although the job market has remained tight over the last few years, headwinds could be on the way. For instance, with the tourism-related industries facing mounting pressure (retail, accommodation & food services) – which employ about 620,200 people – these sectors could become less dynamic in 2016.

Despite the unusually warm weather for this time this year, it has been a bitterly cold winter for Hong Kong’s retail and tourism sectors, and the worst may yet to come.

Caro, F., & Gallien, J. (2012) Clearance Pricing Optimization for a Fast-Fashion Retailer. Operations Research 60(6):1404-1422.
Cachon, G.P., Swinney, R. (2011) The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior. Management Science 57(4):778-795.


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