High-end shopping malls enduring sluggish retail environment

Their situation is not as bad as others'.

HK's retail sales in August plunged 10.5% YoY after a narrower 7.7% YoY decline in July, excluding jewelry and watches, sales were still down 6.3% YoY in August, vs down 3.1% YoY in July.

According to a research note from Bank of America Merrill Lynch, total visitor arrivals were down 9.4% in August, of which PRC visitors were down 11.3% (vs +2.2% YoY in July).

Their situation is not as bad as others'.

HK's retail sales in August plunged 10.5% YoY after a narrower 7.7% YoY decline in July, excluding jewelry and watches, sales were still down 6.3% YoY in August, vs down 3.1% YoY in July.

According to a research note from Bank of America Merrill Lynch, total visitor arrivals were down 9.4% in August, of which PRC visitors were down 11.3% (vs +2.2% YoY in July).

While it is unclear whether stormy weather and the Rio Olympics should be blamed for the steeper drop in August, the slide in PRC group-tourists (-53% YoY) was undoubtedly one of the major drags. According to the HK government, the drop in PRC visitor arrivals in September narrowed.

However, the overall picture for high-end shopping malls was not as bad. Based on Bank of America Merrill Lynch's channel checks, things were not as bad for high-end shopping malls as their key shoppers are Individual Visitor Scheme (IVS) visitors (down 13.7% YoY in Aug, which was less severe than the decline in group tours).

Sales at Harbour City, for example, outperformed the overall Hong Kong market (-7.8% YoY) in Jul.

Here's more from Bank of America Merrill Lynch:

Elements Mall recorded mild sales growth in Jul although it endured a bigger retreat in sales in Aug. Hysan's portfolio (excluding Apple Store) saw a narrower drop in sales in Jul-Aug vs down 8.9% in 1H16. Sales at Lee Gardens declined by mid-single digit rate in Jul and Aug compared with down 13% in 1H16.

IFC saw its tenant sales decline moderate from 8.6% in 1H16 to 1.8% in Jul. It remains our view that high-end retail sales in HK should see a narrower decline in 4Q given the easier comps.

Spring-back of PRC visitor arrival numbers during the Golden Week. According to the Immigration Department, total visitor arrivals during the first seven days of the Golden Week (1-7 Oct) were up 7.7% YoY, of which PRC visitor arrivals were up 7.0%. The number of PRC group-tours was down 20-30% YoY, according to Travel Industry Council of Hong Kong.