Hong Kong protests feed a toxic brew for global luxury sales

The protests in Hong Kong have, rightly, captured the world’s attention. If the demonstrations provoke no small amount of anxiety for onlookers living abroad, the strain on the city and its
residents is surely acute.
With streets getting closed and travel disrupted, businesses there will inevitably feel an effect. The world’s most famous luxury goods brands will not be immune. Hong Kong accounts for between 5 percent and 10 percent of global luxury sales, according to Luca Solca, analyst at Bernstein.
That shouldn’t be a surprise to any visitor. Luxury seems to be everywhere, from the vibrant Tsim Sha Tsui district, to the many big malls boasting everything from giant Louis Vuitton boutiques to top-end jewelers. Even with the opening of swathes of upmarket stores in mainland China, and the rise of Tokyo, Seoul and other rival destinations, Hong Kong remains an important center for wealthy Asian shoppers.
There will clearly have been a hit to footfall for many brands since the public outcry over a proposed extradition law first started earlier this month. Some locations closed, including the Pacific Place mall, where most of the big labels are represented. Even if stores were open, shoppers may have been deterred from visiting
affected areas.
Of particular concern will be any impact on visits by Chinese consumers to Hong Kong. This is crucial for the industry, given that they account for a third of global sales. The longer the protests continue, the grea-
ter reason they will have to stay away.
Quantifying the financial impact on the luxury market is difficult at this point. But recent events may provide some clues.
Richemont said in January that the yellow vest protests in Paris had hurt sales in Europe in the third quarter of its financial year. The owner of the Cartier and Jaeger-LeCoultre brands had earlier noted that typhoons in Asia last September, which forced stores in Hong Kong to shut for a few days, contributed to a slow down in its sales in the region that month.
Neither comparison is perfect. The yellow vest movement was particularly painful for shops, hitting Paris for six consecutive Saturdays in the crucial year-end holiday shopping period. Meanwhile, the typhoons didn’t just affect Hong Kong, but other Asian regions.
But they do offer some indication of the headwind luxury goods groups may face.
While there is some potential to make up for any lost footfall, it is limited.
The trend for Chinese consumers to buy at home has been gaining ground for a while now, and recent events may accelerate this further. The shift has been driven by
a reduction in duties on
domestic purchases, eroding the premium that shoppers traditionally paid.

—Bloomberg