Sept 18 (Reuters) – Growth in India’s commercial vehicle sales volume will slow down to low-to-mid-single digits due to rising ownership costs, Fitch Ratings said in a report on Monday.
The ratings agency said increasing regulatory requirements, elevated inflation and high interest rates have pushed up the ownership costs, thereby weighing on purchase decisions.
There was a 34% growth in commercial vehicle sales at nearly 962,000 units in the financial year 2023, up from the 569,000 units sold in fiscal year 2020, according to data from the Society of Indian Automobile Manufacturers (SIAM).
“The 3.3% Y/Y drop in commercial vehicle wholesale volume in the second quarter of FY23 marked the first yearly decline since March 2020,” Fitch said, adding that this was a result of the purchases made ahead of the price hikes by automakers and vehicle availability issues after the adoption of new emission norms.
The latest rules require the measurement of emissions in real time, leading to a near-5% rise in prices of commercial vehicles from April 2023.
“We expect faster volume for medium and heavy commercial vehicles than for light commercial vehicles, due to India’s rising infrastructure activities and the vulnerability of light commercial vehicles to potentially weaker rural demand due to uneven rainfall,” Fitch wrote in the report.
Reporting by Ashna Teresa Britto; Editing by Sohini Goswami
Our Standards: The Thomson Reuters Trust Principles.
A shopping cart is seen in a Home Depot location in Niles, Illinois, May 19, 2014. REUTERS/Jim Young/File Photo
Aug 15 (Reuters) – Home Depot (HD.N) on Tuesday posted better-than-expected quarterly results, cemented by Americans’ steady spending on small-scale projects around their homes even as they sharply cut back on larger remodeling and renovation.
Shares of the company, which announced a new $15 billion share repurchase program, rose about 1%, with the second quarter benefiting from a recapture of seasonal sales lost earlier this year due to a damp start to Spring.
The top U.S. home-improvement chain’s results come ahead of reports from Walmart (WMT.N) and Target (TGT.N) later this week, with investors focusing on discretionary spending trends as customers battle sticky inflation and higher borrowing costs.
Home Depot’s quarterly customer transactions drop of 1.8% improved from the prior quarter, driven by higher sales of items including plants and landscaping supplies, and steady demand from Pro-customers for products like fasteners and insulation.
Meanwhile, the company maintained its annual forecasts after cutting them in May.
“While there’s a lot of positives in the macro and with the consumer, we still see enough uncertainty, largely driven by (consumer spending shifting from goods to services)… (to not) revise our guidance,” CEO Ted Decker said on a post-earnings call.
Quarterly comparable sales fell 2% in the second quarter, smaller than expectations for a 3.54% drop, according to Refinitiv IBES data. The company’s per-share profit of $4.65 also topped estimates of $4.45.
Big-ticket transactions, or those over $1,000, remained under pressure, declining 5.5%. Demand for one-time purchases like patio furniture and large appliances was soft, said Billy Bastek, executive vice president of merchandising.
Some green shoots are emerging in the housing market. New home sales jumped 12.2% in May to the highest level in nearly 1-1/2 years, while new home construction surged by the most in over three decades.
“Whether the bottoming in the housing market would translate to sales or not – that’s where there is caution from investors,” Telsey Advisory Group analyst Joe Feldman said.
Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila
Our Standards: The Thomson Reuters Trust Principles.
NEW DELHI, July 7 (Reuters) – India’s Reliance Retail, run by Asia’s richest man Mukesh Ambani, has been valued at $92-96 billion by two global consultants, a source with direct knowledge of the matter told Reuters, in a move that could signal plans for an eventual IPO.
Reliance had appointed independent valuers EY, which valued the company at $96.14 billion, and BDO, which priced it at around $92 billion, the source said, declining to be named as the details are confidential.
Reliance, EY and BDO did not immediately respond to requests for comment.
Reliance Retail includes Ambani’s core retail businesses, including digital and brick-and-mortar stores. It is fully owned by Reliance Retail Ventures, which also houses other retail operations such as international partnerships and the billionaire’s consumer goods business.
The valuations show consultants estimate Ambani’s businesses are growing fast. In 2020, Reliance Retail Ventures raised 472.65 billion Indian rupees ($5.72 billion) by selling a 10.09% stake, valuing it at roughly $57 billion based on current exchange rates.
Investors at the time included KKR, the Saudi Public Investment Fund, General Atlantic and the UAE’s Mubadala.
News of the valuation comes ahead of a possible initial public offering (IPO) of Reliance’s retail division. Ambani has said he plans to list his retail operations at some point, but has so far not given a timeline or details of his plans.
EY valued Reliance Retail at 884.03 rupees per share, while BDO valued it at 849.08 rupees, the source said.
Reliance Retail has in recent years partnered with a slew of global brands to launch and expand their presence in India. From fashion to food, its partner brands include Burberry, Pret A Manger and Tiffany.
Reporting by Aditya Kalra in New Delhi, M. Sriram and Dhwani Pandya in Mumbai and Chris Thomas in Bengaluru; Editing by Savio D’Souza, Louise Heavens and Mark Potter
Our Standards: The Thomson Reuters Trust Principles.
LONDON, June 29 (Reuters) – Markets are on the alert to which sectors will buckle under the sharpest jump in interest rates in decades, with big rate moves this month in Britain and Norway a reminder that the tightening is not over.
Central banks may need longer to lower inflation and a fresh bout of financial turbulence could make the process even more protracted, the International Monetary Fund warns.
Stability has returned since March’s banks turmoil, but warning lights are flashing elsewhere and tensions in Russia provide another possible trigger for stress.
Here is a look at some of the pressure points.
1/ REAL ESTATE: PART 1
Just as hopes for an end to Federal Reserve rate hikes boost the U.S. housing market, European residential property is suffering under rate hikes.
UK rates have jumped to 5% from 0.25% two years ago and 2.4 million homeowners will roll off cheap fixed rate mortgages onto much higher rates by end-2024, banking trade body UK Finance estimates.
Sweden, where rates rose again on Thursday, is one to watch with most homeowners’ mortgages moving in lockstep with rates.
London Business School economics professor Richard Portes said, euro zone housing markets appear to be “freezing up” as transactions and prices fall. “You can expect worse in 2024 when the full effects of rate hikes come forth,” he said.
2/ REAL ESTATE: PART 2
Having taken advantage of the low rates era to borrow aplenty and buy up property assets, the commercial real estate sector is grappling with higher debt refinancing costs as rates rise.
“The single most important thing is interest rates. But not just interest rates; what it is equally important is the predictability of rates,” said Thomas Mundy, EMEA head of capital markets strategy at real estate firm JLL.
“If we were settled on an interest rate, real estate prices could adjust. But at the moment, the lag in the adjustment to real estate pricing is creating an uncertain environment.”
In Sweden, high debts, rising rates and a wilting economy has produced a toxic cocktail for commercial property.
And HSBC‘s decision to leave London’s Canary Wharf for a smaller office in the City highlights an office downsizing trend rocking commercial real estate markets.
3/ BANK ASSETS
Banks remain in focus as credit conditions tighten.
“There is no place to hide from these tighter financial conditions. Banks feel the pressure of every central bank,” said Lombard Odier Investment Managers’ head of macro Florian Ielpo.
Banks hold two types of balance sheet assets: those meant for liquidity and those that work like savings meant to earn additional value. Rising rates have pushed many of these assets 10%-15% lower than their purchase price, Ielpo said. Should banks need to sell them, unrealised losses would emerge.
Most at risk are banks’ real estate assets. Federal Reserve chief Jerome Powell says the Fed is monitoring banks “very carefully” to address potential vulnerabilities.
Lending standards for the average household are also a concern. Ielpo expects consumers will stop paying loan payments in the third and fourth quarters.
“This will be the Achilles heel of the banking sector,” he added.
4/ DEFAULT
Rising rates are taking a toll on corporates as the cost of their debt balloons.
S&P expects default rates for European sub-investment grade companies to rise to 3.6% in March 2024 from 2.8% this March.
Markus Allenspach, head of fixed income research at Julius Baer, notes there were as many defaults globally in the first five months of 2023 as there were during 2022.
French retailer Casino is in debt restructuring talks with its creditors. Sweden’s SBB has been fighting for survival since its shares plunged in May on concern over its financial position.
“We are starting to see distress building up in the corporate space, especially at the low end where you have most floating rate debt,” said S&P Global Ratings’ Nick Kraemer.
5/ RUSSIA AFTER WAGER MUTINY
The Wagner mutiny, the gravest threat to Russia’s Vladimir Putin’s rule to date, might have been aborted, but will long reverberate. Any changes to Russia’s standing – or to the momentum behind the war in Ukraine – could be felt near and far.
There’s the immediate fallout for commodity markets from crude oil to grains, the most sensitive to domestic changes in Russia. And knock on effects, from inflation pressures to risk aversion in case of a major escalation, could have far reaching consequences for countries and corporates already feeling the heat from rising rates.
“Putin can no longer claim to be the guarantor of Russian stability and you don’t get that kind of fragmentation and challenges to the system in a stable and popular regime,” said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.
Reporting by Chiara Elisei, Naomi Rovnick, Nell Mackenzie and Karin Strohecker, Graphics by Vincent Flasseur, Kripa Jayaram, Sumanta Sen and Pasit Kongkunakornkul, Editing by Dhara Ranasinghe and Alison Williams
Our Standards: The Thomson Reuters Trust Principles.
BENGALURU/SINGAPORE, May 6 (Reuters) – Singapore state investor Temasek Holdings (TEM.UL) is considering investing $100 million in Indian jeweller BlueStone for a stake of about 20%, two sources with direct knowledge of the matter told Reuters.
The investment would value Bengaluru-based BlueStone, also backed by venture capital firm Accel and Indian industrialist Ratan Tata, at close to $500 million, said one of the sources, who declined to be identified as the matter is private.
The potential deal could boost BlueStone’s plans to expand aggressively in India, the second-largest jewellery consuming nation behind China, as demand surges after the pandemic.
The jeweller has previously disclosed plans to open 300 stores by 2024. It has over 150 stores now, according to its website.
BlueStone operates in a market that is dominated by thousands of small and large local independent jewellery stores, but also branded outlets like Titan Company-owned (TITN.NS) Tanishq and CaratLane, and Kalyan Jewellers (KALN.NS).
Unlike many traditional jewellers, companies like BlueStone and CaratLane also offer online sales.
While Temasek’s interest in investing in Bluestone has been previously reported, Reuters is first to report details of an investment amount, the potential valuation and other financial details of the potential deal.
Temasek is doing due diligence on the transaction and a deal could be struck as early as July-September if talks are successful, said one of the sources.
BlueStone CEO Gaurav Kushwaha did not immediately respond to Reuters’ request for comment, while Temasek declined to comment.
Temasek has been investing $1 billion annually in India over past six years and its underlying exposure to India is $16 billion, which is over 5% of Temasek’s global $297 billion portfolio, its India head Ravi Lambah told the Economic Times last month.
The deal talks also come at a time when many Indian startups have been struggling to raise fresh funds, forcing them to delay IPOs and sack employees as investors question their sky-high valuations. Startups raised just $2 billion in the first quarter of 2023, 75% lower than the same period of last year, according to data firm CB Insights.
Reporting by Chris Thomas in Bengaluru and Yantoultra Ngui in Singapore; Editing by Kim Coghill
Our Standards: The Thomson Reuters Trust Principles.
BEVERLY HILLS, May 2 (Reuters) – Prominent investors including hedge fund and private equity managers at a major industry conference say they are shying away from stocks and real estate amid uncertainty over interest rates, fears of a recession and threat of a U.S. debt default.
Instead, fixed income, which was unpopular when rates were low, is back in favor and seeing strong capital flows into products like bond funds, said fund managers at the Milken Institute Global Conference this week.
Until now, investors made decisions on how to allocate their money based on models that looked at correlations between asset classes, statistics, returns and volatilities over the past 20 years, said Elizabeth Burton, a managing director and client investment strategist at Goldman Sachs.
“Things are very different now,” she said.
The shift in focus has been quick and is forcing investors to move away from some assets that had been popular recently. Six months ago, real estate was seen as the “savior asset class” but that is no longer the case, Burton said.
Hedge fund and private equity fund managers plus top banking executives gathered at the conference that began Sunday with debates on how much more the Federal Reserve should raise interest rates and when rate cuts might begin.
Attendees also discussed whether federal regulators should raise FDIC deposit insurance after First Republic Bank was seized and sold to JPMorgan, and how markets will react to even higher interest rates and potentially more market volatility.
With the S&P 500 (.SPX) up 7.5% since January after a brutal 2022 when the index tumbled nearly 20% and bonds also fell, fund managers are hoping for more gains – though some at the conference said that smacked of rose-colored glasses.
“You get a good sense of consensus at these conferences,” said Katie Koch, president and CEO of investment firm TCW. “And I think people are still feeling a little too good. People are too happy.”
But some also worried that big companies like Microsoft (MSFT.O) and Apple (AAPL.O) that helped pull the S&P 500 index higher this year may be overvalued.
“I don’t like equities because of the uncertainty,” said Anastasia Titarchuk, chief investment officer at the New York State Common Retirement Fund.
Others warned that companies will soon have to refinance their debt at higher rates, making them less attractive.
Instead, thanks to higher interest rates, fixed income is once again playing a bigger role in portfolios.
“The Fed has helped us put the income back in fixed income,” said Anne Walsh, Chief Investment Officer for Guggenheim Partners Investment Management.
“As a result, we’re actually able to capture at least in the short run some very nice yields.”
Other investors also said secondary private equity funds that purchase assets from primary private equity investors could also become attractive as demand for liquidity rises sharply.
Some investors have not given up on equities, though they caution that portfolio selections need to be made carefully.
“Bottom up fundamental investing, including crunching the numbers, is coming back as the risk-free rate has climbed,” said Alexander Roepers, chief investment officer of investment firm Atlantic Investment Management, referring to the interest rate investors can expect on an investment that carries zero risk.
As investors mulled what lies ahead for markets, the mood was more downbeat than in previous years – though at the conference at least, a wellness area for participants with hug-worthy puppies and massages offered some respite.
Reporting by Svea Herbst-Bayliss, editing by Deepa Babington
Our Standards: The Thomson Reuters Trust Principles.
NEW DELHI, April 20 (Reuters) – U.S. tech giant Apple <AAPL.O> could double or triple investments in India, along with exports, over the next few years, a minister said, as the company opened a second store in the world’s biggest smartphone market after China.
Apple mainly assembles iPhones in India through Taiwan contract manufacturers but plans to expand into iPads and AirPods, as it looks to cut reliance on China.
Its iPhones made up more than half of total smartphones worth about $9 billion exported from India between April 2022 and February, data from the India Cellular and Electronics Association shows.
“I am very confident that this Apple-India partnership has a lot of headroom for investments, growth, exports and jobs – doubling and tripling over coming years,” Rajeev Chandrasekhar, the deputy minister for information technology, told Reuters.
His comments came after a meeting on Wednesday with Apple Chief Executive Tim Cook in the capital, New Delhi.
Cook, who also met Prime Minister Narendra Modi, said Apple was “committed to growing and investing across the country”.
He inaugurated an Apple store in New Delhi on Thursday two days after opening its first outlet in Mumbai, the commercial capital.
“We’ve come here only to see Tim Cook,” said Manika Mehta, 32, an Android phone user who queued at the Delhi store.
About 500 people had gathered for Cook’s brief appearance, in which he spoke with fans and took selfies, as in Mumbai.
“My heart was skipping a beat,” said Reeti Sahai, 45, after taking a selfie. “I’m an Apple addict. I’m drawn to Tim Cook, seeing the man he is and the journey.”
Cook’s visit has drawn extensive media coverage and he has been feted like a Bollywood star, with some people trying to touch his feet in a traditional gesture of respect, while others asked for his autograph.
Apple has previously faced hurdles in opening physical retail stores in the South Asian nation, but its products have been available on e-commerce websites, while its online store opened in 2020.
The new stores open as Indian consumers increasingly look to upgrade devices to glitzier models with richer feature sets, from budget versions that typically cost less than $120.
Still, Apple’s pricey phones are affordable for only a few in India, where it has a market share of just 3%.
Apple has been trying to make India a bigger manufacturing base. Its products, including iPhones, are being assembled in India by contract electronics makers Foxconn (2317.TW), Wistron Corp (3231.TW) and Pegatron Corp (4938.TW).
In January, India’s trade minister said Apple wanted the country to account for up to 25% of its production versus about 5% to 7% now.
Reporting By Krishna N. Das; Editing by Jacqueline Wong
Our Standards: The Thomson Reuters Trust Principles.
MILAN, March 30 (Reuters) – Italian truck and bus maker Iveco Group (IVG.MI) said on Thursday it had struck a preliminary deal with Sweden’s Hedin Mobility Group to transfer it its distribution and retail business in Nordic countries to simplify its operations.
Iveco Chief Executive Gerrit Marx said Hedin’s “remarkable market penetration” would help his company support its trucks, particularly those with electric and alternative propulsion systems.
Iveco will transfer its commercial activities for light, medium and heavy trucks in Sweden, Norway, Finland and Denmark, as well as retail sale activity for minibuses to Hedin, it said in a statement, without providing financial details.
The deal, which is expected to be finalised by the end of this year, will exclude distribution of other types of buses, financial services and Iveco’s other businesses.
Iveco said its commercial vehicle distribution and service network in the Nordics was currently based on 39 dealers and more than 100 workshops.
They will now join Hedin’s international dealer network, which include 270 dealerships selling more than 40 brands in 13 countries.
Reporting by Giulio Piovaccari; Editing by Jamie Freed
Our Standards: The Thomson Reuters Trust Principles.
LONDON, March 10 (Reuters) – The easy-cash era is over and its impact is only just starting to felt by world markets yet to see the end of the sharpest interest rate hiking cycle in decades.
Risks were brought to a fore this week as U.S. tech specialist Silicon Valley Bank was shut by California banking regulators on Friday, sparking a rout in bank stocks. SVB was seeking funds to offset a hit on a $21 billion bond portfolio, a result of surging rates, as customers withdrew deposits.
Central banks meanwhile are shrinking their balance sheets by offloading bond holdings as part of their fight against hot inflation.
We look at some potential pressure points.
1/ BANKS
Bank have shot up the worry list as the SVB rout hit bank stocks globally on contagion fears. European banks slid on Friday after JPMorgan (JPM.N) and BofA (BAC.N) shares fell over 5% on Thursday.
SVB’s troubles stemmed from deposit outflows as clients in the tech and healthcare sectors struggled to raise cash elsewhere, raising questions over whether other banks would have to cover deposit outflows with loss-making bond sales too.
Latest Updates
View 2 more stories
In February, U.S. regulators said U.S. banks had unrealised losses of more than $620 billion on securities, underscoring the hit from rising interest rates.
Germany’s Commerzbank issued a rare statement playing down any threat from SVB.
For now, analysts saw SVB’s issues as idiosyncratic and took comfort from safer business models at larger banks. BofA noted European banks’ bond holdings have not grown since 2015.
“Normally speaking, banks would not be taking big duration bets with deposits, but with such rapid rate rises it is clear why investors could be worried and are selling now and asking questions later,” said Gary Kirk, partner at TwentyFour Asset Management.
2/ DARLINGS NO MORE
Even after a first-quarter surge in stock prices, higher rates have dampened the willingness to take punts on early-stage or speculative businesses, especially as established tech firms have issued profit warnings and cut jobs.
Tech firms are reversing pandemic-era exuberance, cutting jobs after years of hiring sprees. Google owner Alphabet plans to axe about 12,000 workers; Microsoft, Amazon and Meta are together firing almost 40,000.
“Despite being a rate sensitive investment, NASDAQ has not responded to the implications of interest rates. If rates continue to rise in 2023, we may see a significant sell-off,” said Bruno Schneller, a managing director at INVICO Asset Management.
3/ DEFAULT RISKS
The risk premium on corporate debt has fallen since the start of the year and signals little risk, but corporate defaults are rising.
S&P Global said Europe had the second-highest default count last year since 2009.
It expects U.S. and European default rates to reach 3.75% and 3.25%, respectively, in September 2023 versus 1.6% and 1.4% a year before, with pessimistic forecasts of 6.0% and 5.5% not “out of the question.”
And with defaults rising, the focus is on the less visible private debt markets, which have ballooned to $1.4 trillion from $250 billion in 2010.
In a low rate world, the largely floating-rate nature of the financing appealed to investors, who can reap returns up to the low double digits, but now that means ballooning interest costs as central banks hike rates.
4/CRYPTO WINTER
Bitcoin staged a recovery at the start of the year but was languishing at two-month lows on Friday .
Caution remains. After all, rising borrowing costs roiled crypto markets in 2022, with Bitcoin prices plunging 64%.
The collapse of various dominant crypto companies, most notably FTX, left investors shouldering large losses and prompted calls for more regulation.
Shares of crypto-related companies fell on March 9, after Silvergate Capital Corp (SI.N), one of the biggest banks in the cryptocurrency industry announced it would wind down operations and sparked a crisis of confidence in the industry.
5/FOR SALE
Real estate markets started cracking last year and house prices will fall further this year.
Fund managers surveyed by BofA see China’s troubled real estate sector as the second most likely source of a credit event.
European real estate reported distress levels not seen since 2012 by November, law firm Weil, Gotshal & Manges found.
How the sector funds itself is key. Officials warn European banks risk significant profit hits from sliding house prices, which is making them less likely to lend to the sector.
Real estate investment management firm AEW estimates the sector in UK, France and Germany could face a 51 billion euro debt funding gap through 2025.
Asset managers Brookfield and Blackstone recently defaulted on some debt tied to real estate as interest rate hikes and falling demand for offices in particular hit property values.
“The reality that some of the values out there aren’t right and perhaps need to be marked down is something that everyone’s focused on,” said Brett Lewthwaite, global head of fixed income at Macquarie Asset Management.
($1 = 0.9192 euros)
Reporting by Yoruk Bahceli, Chiara Elisei, Nell Mackenzie, Dhara Ranasinghe, Naomi Rovnick, Elizabeth Howcroft; Graphics by Kripa Jayaram and Vincent Flasseur; Editing by Dhara Ranasinghe and Toby Chopra
Our Standards: The Thomson Reuters Trust Principles.
HONG KONG, March 7 (Reuters) – Hong Kong, one of the world’s top luxury shopping destinations, is losing its lustre as high-end retail properties go vacant and famous foreign brands reduce exposure to the city in favour of opening new outlets in mainland China.
Glitzy Hong Kong shopping streets once packed with luxury stores that attracted 56 million visitors in pre-pandemic 2019 now have about half of their shop units sitting vacant, according to property management companies.
Rents in Tsim Sha Tsui are down 41% from pre-pandemic levels, according to property firm Cushman & Wakefield (CWK.N), and last year the retail district was displaced as the world’s most expensive shopping real estate by New York’s Fifth Avenue.
Canton Road, the most famous shopping street in Tsim Sha Tsui, has a vacancy rate of about 53%, according to global property company Savills (SVS.L).
“Most luxury retailers don’t think Hong Kong will return to the dizzy levels of 2014 when the market here peaked,” said Simon Smith, Savills’ senior director of research and consultancy in Hong Kong.
Latest Updates
View 2 more stories
“If you walk around the major shopping areas you won’t see the queues outside luxury boutiques or if you do they are very short,” Smith said.
In place of stores shut by Tiffany, Valentino, Burberry (BRBY.L) and other big brands over the last three years, including in Tsim Sha Tsui, Central and Causeway Bay shopping districts, pharmacies and sports apparel outlets for brands like Adidas (ADSGn.DE) and Sweaty Betty have moved in.
Luxury and big brand retail companies mentioned in the story did not respond to requests for comment.
The store closures came after pro-democracy protests and the crackdown that followed pushed sales into a slump which worsened under nearly three years of stringent COVID rules.
Over that period, Hong Kong suffered around a 30% plunge in overall retail sales compared to 2018 levels, largely due to a tumble in mainland visitors because of travel restrictions. Tourists from greater China are the main driver of Hong Kong’s branded retail and luxury goods market.
Hong Kong retail data doesn’t break out luxury goods separately but the sector was hit hard as China accounted for almost 80% of inbound tourists in 2019. Jewellery, watches, clocks and valuable gifts sales in 2022 at HK$38.8 billion ($4.9 billion), for instance, were less than half their 2018 value.
And while inbound travellers in January tripled from December as COVID restrictions were lifted and travel resumed, arrivals were still only about 10% of 2019 levels.
Morgan Stanley (MS.N) forecast Hong Kong visitor numbers this year will reach just 70% of 2018 arrivals. It estimates retail sales will grow 15%, holding at around 80% of retail trade from the pre-COVID year.
MANY MORE ALTERNATIVES
Many luxury brands expanded in mainland China during the pandemic, opening stores in far-flung locations to reach consumers unable to travel. Tourist destinations such as resort island Hainan and Macau also have become popular alternatives as China sought to develop multiple duty and tax free destinations.
Visitors to Macau in January more than tripled from December, hitting 40% of the level of January 2019. Hainan, which reported visitor growth even during the pandemic, saw arrivals rise 11% between Jan. 8 and Feb. 15 compared to the same period a year earlier, according to the government.
“(Hong Kong) will never be back to the level it was, like a decade ago, when it was the only, I would say, duty free location where Chinese would go,” L’Oreal (OREP.PA) CEO Nicolas Hieronimus told Reuters.
“Now they have many more options.”
Duty free malls in Hainan, where tourists are the main customers, reported an 84% jump in sales in 2021, the latest data from consultancy Bain & Co showed, outpacing the mainland’s average growth rate of 36% in luxury sales for that year.
Hainan also accounted for 13% of China’s domestic luxury spend in 2021 versus 6% pre-pandemic, and tax regulations are set to ease further, allowing more duty-free stores to open.
That helped China’s domestic luxury sales double to 471 billion yuan ($68.8 billion) in 2021 from 2019, according to Bain. That outstripped total Hong Kong retail sales from a peak hit in 2013 at HK$494.5 billion ($63.0 billion), according to the city’s statistics department.
This imbalance in favour of increasing sales in China had big luxury brands opening stores across the country over the last few years, according to filings and company websites.
Hermes (HRMS.PA), with 27 stores in the mainland, opened a new, enlarged store in Nanjing in January, relocating to upscale mall Deji Plaza. It first opened a store in 2010 in the eastern city.
Gucci owner Kering (PRTP.PA) opened nine boutiques in Greater China in 2021; upscale men’s suit maker Brioni opened stores in Chengdu, Wuhan and Shenzhen; jeweller Boucheron opened two mainland stores.
Saint Laurent, another Kering brand, opened its first flagship stores in Shanghai and Beijing in 2019. The group’s jeweller Qeelin has also been expanding in the mainland and opened its largest flagship store in China in Shanghai in 2021.
Despite the increasing investment in the mainland, some are still hopeful about the long-term outlook for Hong Kong as global economies and holiday travel recover.
“Macau is another tax free destination and Hainan is duty free. Yet, you don’t find the breadth and depth of mono-brand stores in Hainan that you can find in Hong Kong,” Luca Solca, managing director for luxury goods at investment management firm Sanford C. Bernstein, told Reuters.
“Hong Kong remains very attractive for Chinese consumers.”
($1 = 6.8510 yuan)
($1 = 7.8498 Hong Kong dollars)
Reporting by Farah Master, Jessie Pang, Anne Marie Roantree, Angel Woo and Donny Kwok in Hong Kong, Sophie Yu in Beijing, and Mimosa Spencer in Paris; Writing by Miyoung Kim; Editing by Tom Hogue
Our Standards: The Thomson Reuters Trust Principles.