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Hong Kong luxury moves to Macau along with Chinese tourists

Luxury-watch retailer Halewinner will almost double its store count in the Chinese gambling hub of Macau, where casinos want time to be irrelevant, dealing another blow to Hong Kong's staggering retail market.

[HONG KONG] Luxury-watch retailer Halewinner will almost double its store count in the Chinese gambling hub of Macau, where casinos want time to be irrelevant, dealing another blow to Hong Kong's staggering retail market.

Halewinner Watches Group will open at least nine more shops in Macau while closing two in Hong Kong, Chairman Karson Choi said in an interview.

Most of the new stores will be in the Cotai Strip, where Sands China Ltd will open its Parisian resort this year and Wynn Macau Ltd will debut the Wynn Palace.

"This year we're still going ahead with our major expansion plan," said Mr Choi, son of billionaire Francis Choi. "That plan is in Macau." The peninsula, home to the world's biggest gambling centre, is trying to diversify its image by welcoming luxury-brand shoppers.

That effort is helping siphon big spenders from Hong Kong, where the number of visitors from China dropped for nine straight months and retail sales in February plunged the most in 17 years.

The outlook isn't any better for next week's Labor Day holiday, with the Hong Kong Travel Industry Council estimating the number of package-tour travelers will drop by 50 per cent.

The tour-group visitor count, which mostly consists of Chinese tourists from the mainland, plunged 60 per cent in the first quarter from a year before.

"We don't see any recovery signs in the upcoming Labor Day holiday," said Joseph Tung, the council's executive director.

The gloom engulfed even Apple Inc, with sales for Greater China plunging 26 per cent in the quarter ending March 30.

"The vast majority of the weakness in the Greater China region sits in Hong Kong," Chief Executive Officer Tim Cook said during an April 26 call with analysts. One reason he cited is the local currency's peg to the stronger US dollar.

"That has driven tourism, international shopping, and trading down significantly compared to what it was in the year ago," Mr Cook said.

Luxury handbag and fashion retailers also are taking hits in the city. Burberry Group PLC sales in Hong Kong fell more than 20 per cent for a third straight quarter, and the company is seeking to reduce its local rent payments.

Prada SpA, which held Hong Kong's biggest initial public offering in 2011, reported sales in Asia fell 16 per cent last year.

"The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects," the Hong Kong government said after retail statistics were released in late March.

Luxury Watches Choi's father is billionaire Francis Choi, whose Early Light Industrial Co Ltd makes toys for more than 30 brands, including Mattel, Hasbro, Disney and Wow Wee.

Early Light also owns properties in Hong Kong and is moving into consumer electronics and medical products to help increase profit margins, the younger Mr Choi, 30, said.

Halewinner outlets sell watches from more than 40 brands, including a US$200,000 Jaeger-LeCoultre and a US$180,000 Blancpain. During an April 20 interview at a Halewinner outlet in Causeway Bay, Hong Kong's premier retail district, Mr Choi wore a steel Audemars Piguet Royal Oak timepiece priced at US$21,000.

The family acquired the watch retailer in 2010, when it had just seven stores. Now it has more than 30 outlets in Hong Kong, Macau and mainland China.

Sales at its Hong Kong stores dropped 30 per cent last year amid China's economic slowdown, a government anti-corruption campaign and protests by Hong Kong residents claiming the city caters to wealthy mainland visitors at their expense.

Zhou Guoliang, 54, a general manager in the electronics industry from Shanghai, and his wife rarely visit Hong Kong nowadays partly because of social tensions.

"I heard Hong Kong people insult Chinese," said Mr Zhou. "We come to bring consumption, and you should be nice and guide visitors." So he's taking his money to Macau, where he vacations three to four times a year.

Mr Zhou once bought a US$7,000 Omega watch and a US$6,000 necklace from Chow Sang Sang Holdings International with his winnings in Macau, although he observed the watches are slightly pricier in the Portuguese city.

"People who gamble in Macau go there particularly for amusement and fun," said Mr Zhou. "I wouldn't save the money to bring it back home."

Swiss watch exports to Hong Kong in March fell 38 per cent from a year ago, the most among major markets, according to the Federation of the Swiss Watch Industry.

Chow Tai Fook Jewellery Group Ltd, the world's largest listed jewelry chain, and Sa Sa International Holdings Ltd reported slumping sales during the Lunar New Year holiday in February, when the number of mainland Chinese tourists to Hong Kong dropped by 26 per cent from a year earlier.

Shares of Chow Tai Fook Jewellery have dropped 44 per cent from a year ago, while competitor Chow Sang Sang Holdings International has declined 30 per cent. The benchmark Hang Seng Index is down 26 per cent from a year earlier.

China's economic slowdown and anti-corruption efforts also affect Macau and its US$30 billion casino industry, yet there are signs the market has hit bottom. Visitor totals for the former Portuguese colony rose 4.2 per cent last month, and a flood of new projects like the Batman Ride targets tourists and families.

"Retailers are still willing to expand in Macau because Chinese visitors will continue to come and play in the gaming hub," said Michael Cheng, Asia Pacific & Hong Kong/China retail & consumer partner at PricewaterhouseCoopers LLP.

Halewinner's 15 shops in Macau experienced a downturn last year, though Mr Choi remains bullish because "the situation improved" by the fourth quarter and the city is the only one in China with gambling. For Hong Kong, he expects sales to drop 10 to 15 per cent this year.

The company plans to have more than 20 shops there by year's end and is trying different methods to engage with customers - even hosting parties with wine and cigars to show new watches.

"Buying things is one of the things you do when you go on a vacation," Mr Choi said. "They buy because they won some money or because they lost some money. A lot of customers lost some money and come to buy a product so they feel better."