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Kingdom Jewellery is trying to stand out among the eerily quiet luxury stores in Hong Kong’s Causeway Bay, once the world’s most expensive shopping district in terms of rents.
But while it has hung signs promoting a “crazy sale” and payment by instalments in the window, buyers are still scarce.
“Our customer flow has dropped 60-70 per cent” since the peak of Chinese luxury spending in 2013, says manager Jacky Sze. “I don’t have much hope for the rest of this year, or next.”
Before demand was hit by President Xi Jinping’s corruption crackdown and the economic slowdown, Chinese tourists were happy to spend up to HK$100,000 ($12,890) on a single purchase at Kingdom. Now many customers are reluctant to spend more than HK$1,000 at a time, according to Mr Sze.
The jewellery shop next door has closed down after decades of thriving business, as have many other luxury goods stores across Hong Kong, which is losing its status as the great mall of China.
Retail sales in Hong Kong fell by 10 per cent in the first seven months of the year, compared with the same period in 2015, with purchases of jewellery and watches declining by 22 per cent.
Ahead of Hong Kong’s annual watch fair last week, the Chinese territory was overtaken by the US as the world’s biggest market for Swiss watches after eight years in the top spot.
Part of the problem for Hong Kong, which relies on the retail sector as an economic driver, is its increasingly testy relationship with mainland China. That has deterred many Chinese visitors, with numbers falling by 9 per cent year on year to 24m in the year to July.
But there is a bigger structural problem for the global luxury goods industry, which has grown to rely on demand from China’s growing ranks of nouveaux riches.
Analysts at UBS estimate that Swatch, the Swiss watch group, made 47 per cent of its sales to Chinese customers last year, while for Richemont, the Swiss luxury goods company that owns Cartier, Jaeger-LeCoultre and Montblanc, it was 38 per cent.
Edward Olver, the chief executive of Britannia Elevation, which promotes British luxury brands abroad, says too many companies took a “combine harvester” approach to selling in China and are now paying the price for over expansion.
“There was a tremendous period of people making money very quickly in China and a lot of Italian and French brands thought there’s a lot of corn to be harvested,” he said.
Sarah Quinlan, the head of market insights for the analytics division of MasterCard, the credit card company, says consumer spending patterns are changing in China, with a greater focus on experiences rather than expensive products.
“There’s a real debate as to whether what we call traditional luxury — handbags or watches — will come back to the same extent that we saw before because there’s been a huge behavioural shift,” she says. “We still see the Chinese travelling extensively, but spending on goods has moderated and spending on hotels, restaurants and entertainment has gone up.”
Hong Kong needs a “permanent restructuring” because it cannot wait for demand from high-spending Chinese tourists to come back, according to Ramesh Tainwala, the chief executive of Samsonite, the luggage maker.
His own company has been changing tack, promoting less expensive products in the Chinese market as it tries to emphasise the practical advantages of its suitcases rather than their luxury appeal.
Other companies are also being forced to trade down, selling simpler, cheaper products to customers who are growing more interested in specifications and value rather than mere status symbols.
Timothy Kao, vice-president of the Hong Kong Watch Manufacturers Association, explains that previously Chinese buyers were simply attracted by the most expensive products.
“But now practical watches with a realistic price sell better,” he says.
Liz Lee, assistant marketing manager at Doxa, a Swiss maker of diving watches, says that another response to the decline is to seek out new markets.
“The greater China market is saturated right now,” she says. “We are looking to diversify our market to the Middle East; places like Iran have great potential too.”
Additional reporting by Gloria Cheung in Hong Kong and Christian Shepherd in Beijing