Hong Kong Retail Slows as Mainland Tourists Stay Away

“There is an urgent need for a new marketing campaign to rebrand Hong Kong as a dynamic, exciting and relevant modern city,” said Mr. Kwok.

Luxury sales began their decline in late 2013 after Beijing started cracking down on corruption and conspicuous consumption. The slump has spread to mass market retailers this year as the Chinese economy slowed. Milan Station, a vendor of secondhand handbags, said revenue in its Hong Kong shops fell over 28% in the first half of the year, while cosmetic retailers Sa Sa and Bonjour reported revenue declines of 10.6% and 14.4% in the six months ended September and June, respectively.

Though shop rents and retail prices have dropped, they are still some of the highest in the world and could continue diverting tourist shoppers away from Hong Kong to cheaper prices elsewhere.

“The city has been very focused on Chinese tourists and shopping, and underinvesting in building new tourist attractions and experiences,” said Mariana Kou, an analyst at brokerage CLSA.

“Hong Kong needs to transform into a more diversified tourist destination,” she said.

China’s increasingly mobile and affluent middle class has meant big business for travel-related companies including airlines, travel agencies and luggage makers. And despite a slowing economy and a stock-market collapse this summer, they are projected to spend over $200 billion abroad for 2015.

While many countries have relaxed visa requirements to attract Chinese tourists, Hong Kong this year tightened visa limits for Chinese visitors from neighboring Shenzhen to one rather than multiple visits a week, amid heightened tensions between the local population and Chinese tourists. Mass protests against Beijing’s encroaching rule last year also kept visitors away.

The stronger U.S. dollar has also made traveling to Hong Kong more expensive, as the local currency is pegged to the dollar. Destinations with weaker currencies such as Japan and Europe have attracted Chinese vacationers there instead.

For its part, the Hong Kong government plans to host more large-scale dining and sporting events to boost tourism. It has already committed billions of dollars to develop new cultural and arts venues, and plans new waterfront attractions. It is also in talks to build a second Disneyland theme park.

But their construction could take years, and it could take a long time for the sites to attract a new, varied crowd. Until then, analysts say Hong Kong retail will likely continue its slump and companies will need new ways to attract business, as they can no longer depend on mainland tourists.

When Gao Hang, 26, first visited Hong Kong in 2013 she found it a “flourishing, great city.” She visited again in 2014, but this year, the customer service professional from the port town of Dalian opted for a vacation in Europe instead.

“There’s not that much to do in Hong Kong. One trip is really enough,” she said.