Thursday, February 10, 2011

Diamonds, Breguet Watches Boost Hong Kong Retailers

Chinese tourists visiting Hong Kong in record numbers over the Lunar New Year holidays splurged on diamonds, cosmetics and watches, boosting retailers’ sales.

Chow Sang Sang Holdings International Ltd.’s revenue climbed 17 percent during the first week of the Lunar New Year and the 12 days leading up to it, according to Dennis Lau, the jeweler’s director of sales operations.

Greater China will be the world’s biggest market for high- end products in a decade, growing 21 percent a year on average, according to Aaron Fischer, a Hong Kong-based analyst at CLSA Ltd. That growth is a boon for Hong Kong, a favored destination for Chinese shoppers, where tax-free luxury goods cost 30 percent less on average and the risk of counterfeit products is low, Fischer said.

“Per-capita spending on watches in Hong Kong is off the charts,” Fischer said in a briefing today. While the Chinese have been big buyers of luxury goods for several years, “growth seems to be accelerating,” he said.

Visitor arrivals to the former British colony from mainland China during the country’s Feb. 2-8 holiday period reached a record 663,000, surpassing last year’s 570,000, according to data from the Hong Kong Immigration Department.

That helped retailers like Chow Sang Sang, where the biggest-ticket item sold during the period was a HK$300,000 ($38,500) diamond bought by a customer from mainland China, Lau said in a phone interview.

Breguet Watches

“Our sales representatives at the Rolex and Tudor boutique in Tsim Sha Tsui were so busy with customers that they had no breaks at all,” said Anna Luk, Emperor Watch & Jewellery Ltd.’s investor relations manager. LVMH Moet Hennessy Louis Vuitton SA, the world’s biggest luxury goods maker, owns a 7.4 percent stake in Emperor, whose market value more than doubled last year.

Breguet watches selling for more than HK$1 million were among the items snapped up by mainland Chinese, Luk said. Emperor, which has more than doubled in market value in the past year, fell 3.6 percent to close at HK$1.08 in Hong Kong trading.

Hong Kong, a southern Chinese city with a population of about 7 million, is the biggest market for Swiss watchmakers as retailers sell the timepieces to visitors from across the border.

About 20 percent of last year’s 16.2 billion Swiss francs worth of watch exports from Switzerland were to Hong Kong, or about double the share of the U.S., according to data from the Federation of the Swiss Watch Industry. Sales in mainland China -- which doesn’t include Hong Kong, Macau or Taiwan -- accounted for another 7 percent.

‘Wealth and Success’

“Chinese consumers love watches and jewelry for their intrinsic value, and accessories are great vehicles to display wealth and success,” CLSA analysts Fischer and Mariana Kou said in a research report last month. “Some 24 percent of people we surveyed that earn around 41,976 yuan ($6,400) per year said they would be willing to spend more than 50,000 yuan on a watch.”

Sa Sa International Holdings Ltd., a Hong Kong-based cosmetics and skin-care products retailer, increased sales more than 10 percent from last year’s holiday period.

Sa Sa fell 4.9 percent in Hong Kong trading, trimming its gain over the past year to 64 percent. Chow Sang Sang declined 2.4 percent and has climbed 83 percent over the past 12 months.

Retailers in the city are also benefiting as China’s currency strengthens against the Hong Kong dollar, increasing the purchasing power of visitors from the mainland. The yuan has gained 3.9 percent against Hong Kong’s currency in the past year.

Dior, Estee Lauder

A housewife from mainland China who only identified herself by her last name, Huang, said she planned to spend HK$100,000 during a two-day visit to Hong Kong.

“It’s much cheaper to buy in Hong Kong as the yuan is stronger,” she said, holding a shopping bag filled with Christian Dior clothes and Estee Lauder cosmetics as she walked around the Tsim Sha Tsui tourist district on Feb. 7. “I have spent HK$30,000 today so far.”

About 10 percent of global luxury goods sales are made in greater China, and the sector will be the fastest-growing consumer category over the next five years, Fischer and Kou said in their report. Including sales to Chinese tourists abroad would raise that number to 15 percent, they said.

“Given rising incomes and supportive social factors, we expect greater Chinese customers to account for 44 percent of global luxury sales by 2020,” the analysts wrote.

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