Caution over luxury item spending amid economic woes

Both mainland visitors and local residents plan to cut back their spending on luxury items amid rising economic uncertainty, according a survey by global research firm Ipsos and communication firm Ruder Finn. 

The survey shows that luxury-brand watches are practically off mainland consumers' shopping list with 54 percent of respondents saying they plan to spend less on watches over the next 12 months. 

Mainland consumers are also less eager for jewelry and expensive hand bags, with 48 percent of respondents saying that they will cut their spending on these items in the next 12 months. 

But mainland consumers are not cutting back spending on all luxury goods, as the majority of respondents said they are still willing to increase their spending on luxury cosmetics (43 percent), high-end shoes (43 percent), and top-brand wines and cigars (40 percent). 

Meanwhile, respondents from Hong Kong are even more cautious about their future spending, with over 50 percent of respondents saying they will spend less on jewelry, watches and handbags; over 40 percent plan to cut back their spending on cosmetics, apparel as well as shoes. 

The survey, which was conducted in June, involved interviews with 2,017 consumers who had purchased luxury items in the past 12 months. Around 15 percent of them are from Hong Kong, 23 percent from first-tier mainland cities and the rest from second and third-tier mainland cities. 

"In the past 12 months the luxury market (on the mainland) was going strong but consumers are cautiously planning for the next year because of the economic news they're reading, and this could lead to a relative slowdown," says Simon Tye, Executive Director of Ipsos. 

Echoing Tye's words, Elan Shou, senior vice-president at Ruder Finne, said based on what she had learned from its customers (luxury goods sellers), consumers from both Hong Kong and the mainland have already been spending more cautiously, as "there are too many uncertainties in the air". 

"I don't think that they (consumers) are spending less because their purchasing power has declined...they still have the money, but they are just withholding the purchases until the economic situation becomes more clearer," said Shou. 

Another major finding of the survey is that China itself has become the go-to destination for buying luxury goods in 2012 replacing Hong Kong and Europe in its last year's survey. 

"Most luxury brands already have stores in major cities on the mainland, and consumers now can purchase luxury items from next door, so they have fewer reasons to travel to purchase them from Hong Kong," said Shou. 

According to Hong Kong's official data, total retail sales value in July increased by only 3.8 percent over a year earlier. The city's retail sales used to grow by double digits during the past one or two years. 

In July, the sales for retail outlets of jewelry, watches and clocks, and valuable gifts in Hong Kong only increased by 0.9 percent year-on-year. 

"The luxury market in Hong Kong may have nothing to worry for now, as there are so many wealthy people on the mainland, and even if people from first-tier cities stopped coming to Hong Kong for shopping, there are still a lot of people from second and third-tier cities who will," said Shou. 

But Hong Kong should be concerned about its future, as the people's purchasing power from smaller cities on the mainland may not be as strong as those from Beijing and Shanghai, she said, adding that if Hong Kong provides nothing but a little discount on luxury items, it will lose its advantages as a "shopping paradise" eventually.