Hong Kong’s luxury shops are adjusting to a decline in wealthy Chinese visitors to the city and a change in the type of tourists who visit Instagram-worthy locations in hip neighbourhoods instead of shelling out big bucks for designer clothing.

Because of its appeal to affluent mainland tourists, the Chinese Special Administrative Region has defied worldwide trends prior to the epidemic, indicating a decline in demand for multi-brand department shops and ultra-luxury products.

However, industry experts claim that the emergence of rival shopping destinations like China’s Hainan island, shifting consumer tastes, and an increase in internet shopping have drastically altered Hong Kong’s demand for luxury items and are beginning to disrupt the city’s tourism sector.

“The focus of visitors in Hong Kong has shifted from ‘shop till you drop’ to a greater desire for local culture and experience-based touring,” said Rosanna Tang, an executive director at Cushman & Wakefield.

According to Tang, the first half of the year saw overnight and same-day tourist shopping expenditure at 55% and 18% of 2018 levels, respectively. This led businesses to concentrate more on food and beverage shops.

Leading the front in these reforms is the upscale British department shop Harvey Nichols. After nearly 20 years, its owner Dickson Concepts announced last month that it would be terminating its lease on its main five-level store in the posh Landmark mall in the heart of the city.

“Chinese tourists coming to Hong Kong are no longer focused on shopping as they used to be before the pandemic,” the company said in a statement.

Less tourists arrive as well; arrivals only reached 60% of 2018 levels prior to 2019 anti-government demonstrations and strict regulations during the pandemic.

The government and tourism industry are attempting to entice tourists to nature and leisure areas in an effort to lessen Chinese buyers’ dependency on luxury shopping, even if Hong Kong’s overall retail sales are down almost 20% from 2018 levels.

Companies and business chambers in Hong Kong are also working to mend fences between the West and Hong Kong following the departure of tens of thousands of individuals due to Beijing’s 2020 implementation of a national security law and strict COVID regulations.

This month, the government said that it is working on a number of projects, including the establishment of a trekking hub, large-scale festivals, and green tourism on the outer islands.

It’s yet uncertain how successful that tactic will be in luring spending back. The robust occupancy of luxury hotels can be attributed to the return of business visitors.

Harvey Nichols’ shutdown follows the closing of certain locations by luxury labels like Valentino, Burberry, and Tiffany owned by LVMH in Hong Kong, where retail rents are the highest in Asia even though they have decreased by almost 40% since 2019.

According to Euromonitor International, despite the closures, Hong Kong regained its top spot in terms of per-capita expenditure on luxury goods this year, surpassing both Switzerland and Singapore. The company projects that the city would reach its pre-COVID personal luxury goods sales levels by mid-2024.

After a three-year hiatus, congested traffic has returned to the city’s commercial districts, and drinkers and revellers are slowly making their way back into the city’s pub districts.

The luxury market will recover, according to Caroline Reyl, Head of Premium Brands at Pictet Asset Management, which owns LVMH shares. However, given competition from the Chinese tropical island of Hainan, it will probably be difficult to reach earlier heights.

“There was probably some over-distribution in the past,” she said, meaning that major luxury labels over-saturated Hong Kong with their stores. “As some luxury brands have reduced their exposure to Hong Kong, that space will be filled by other brands.”

Louis Vuitton, controlled by LVMH, is one of the companies placing bets on the future of the city.

Louis Vuitton staged a star-studded fashion display alongside Hong Kong’s waterfront last month to symbolise a luxury revival in the former British colony, even if stores are still empty compared to the lines outside before COVID.

This year, Chanel debuted a brand-new, opulent two-story retail location in Causeway Bay, while De Beers and LVMH’s Bulgari also debuted flagship locations in the well-liked Tsim Sha Tsui neighbourhood.

Tenant sales and foot traffic in its city centre malls have recovered to pre-pandemic levels, according to real estate firm Hong Kong Land, the owner of the Landmark mall that Harvey Nichols is leaving.

During a recent visit to the Landmark, the lobby’s festive display areas were crowded with people, and restaurants were full. But few were buying fancy clothing.

“It’s a true shame that Harvey Nichols is leaving Landmark, but the fact of the matter is that they really have no business,” said 67-year-old Sarah Ng, who was walking through the mall. “It’s so high-end, but they have no customers.”

(Adapted from Asahi.com)