Luxury brands shift focus to the mainlandProperty | Eurus Yiu 10 Jun 2021
Luxury brands and hotels have shifted their focus from Hong Kong to the mainland as the Covid-19 pandemic causes devastating disruptions to the travel and hospitality industry across the world, leading to unprecedented economic and social consequences.
In Hong Kong, inbound tourism plunged 94.3 percent in the first year of the pandemic, with the city seeing only 1.4 million international overnight visitors. The occupancy rate in hotels also slipped by 50 percent to a mere 24 percent.
Amid the gloomy market situation, some hoteliers are rethinking their business strategies to offer long-term stays, while others are finding other uses for their properties, such as transforming them into coworking spaces or residential developments.
Given the poor market environment, many hotel operators have put their opening plans on hold. But some operators, including InterContinental Hong Kong, Kings Hotel and Four Seasons Hotel Hong Kong, took advantage of this opportunity to renovate or rebrand their hotels - a move that could help increase revenue in the long run.
Martin Wong, Knight Frank's director and head of research and consultancy in Greater China, still holds a positive view on the longer-term prospects for tourism in the Greater China region.
He said although the number of international overnight visitors in Shenzhen plunged by 90.1 percent to 1.2 million in 2020, some luxury hotel brands maintained a positive long-term outlook, with 13 new luxury hotels opening in Shenzhen during the year.
He believes there will be strong pent-up travel demand in the post-Covid era, along with immense potential demand for both leisure and business travel to be generated by the Greater Bay Area initiative.
Meanwhile, luxury brands, also affected by the pandemic, have been moving out of the Hong Kong market.
John Lam Chun-hung, head of Hong Kong and China real estate at UBS Global Research, believes that luxury brands would continue to consolidate their stores in Hong Kong while developing a bigger offline presence in the mainland.
Lam says the mainland's luxury goods purchasing power has been flowing from overseas shopping to local purchases. He predicts that the amount of luxury goods purchased outside of the mainland will drop from 68 percent in 2020 to 36 percent in 2025.
On the other hand, the domestic purchase rate will increase from 31 percent to 55 percent in those five years.
Lam also noted that top luxury brands had an average of seven stores in Hong Kong at the beginning of last year. But that number has been falling to about 5.5 as more and more brands opt to open stores in other Greater Bay Area locations, especially in Guangzhou and Shenzhen.
Although the government is set to roll out consumption vouchers soon, Lam believes it will not help the SAR retain the strong presence of luxury brands.
He said the city's luxury consumption mainly relies on mainland customers who do not benefit from the scheme, so he does not see luxury brands flowing back to Hong Kong when sales have already moved to the mainland.
Even after the border reopens, he does not expect the situation to return to pre-pandemic levels.
But Lam says luxury brands may still operate core stores in the city's top shopping malls, while other malls that are more mass-oriented may face structural change as more brands that are in line with local consumption patterns step in.
He also pointed out that the newly launched Hainan duty-free shopping policy may serve as another blow to Hong Kong's retail industry.
To mainland customers from the north, there's not much difference between traveling to Hong Kong or Hainan. Thus, part of the purchasing power may shift to Hainan as the island has strong momentum and its 1 percent market share may soar to 9 percent in five years.