A Mainland Chinese tourist shops in Tsim Sha Tsui. Photo from AFP
Sindart was as much a fixture of Nathan Road as the double-decker buses that trundle up the street day and night. For more than 50 years, the tiny shop, tucked beneath an apartment building stairwell, sold handmade slippers embroidered with colourful motifs: peacock features, panda cubs, flowers and goldfish. It witnessed the 1967 riots, the boom years of the 1980s and the handover in 1997, all while serving a steady stream of enthusiastic customers.
But even such a venerable institution was not immune to the vagaries of local real estate. “We had the same landlords for 50 years — two generations in the same family,” says Billy Wong, who joined the business five years ago to help his uncle, owner Chung Kau. Last year, the landlords told Chung and Wong they wanted to use the space for themselves. They gave them one month to leave.
It turned out the landlords hadn’t been honest. Soon after Sindart was forced to leave, the stairwell space came back on the market. “I called the real estate broker listed on the ‘for rent’ sign and asked how much they wanted,” says Wong. “They told me no less than HK$40,000 per month. We never paid more than HK$4,000.” The space is now occupied by a currency exchange counter.
Retail rents are soaring all across Hong Kong. International chains have launched bidding wars for prime shop spaces in neighbourhoods like Causeway Bay, where American fashion chain Forever 21 is paying HK$11 million per month for a space on Jardine’s Bazaar. Spanish retailer Zara is reportedly keen to rent a space on Percival Street that costs HK$5 million per month; the previous tenant paid HK$880,000. On average, Causeway Bay rents have increased 50 percent over the past two years.
Retail analysts say there is one culprit: tourists from mainland China. “What’s driving the change in the retail landscape in Hong Kong is obviously mainland Chinese shoppers,” said property researcher Adrian Ngan on Bloomberg TV last month. “There’s a lot of them and they are spending a lot of money.”
15 years after Hong Kong’s return to China, the number of mainland visitors to Hong Kong has not just grown, it has exploded. In 1997, 11 million tourists visited Hong Kong, 2.3 million of whom were from the mainland. Six years later, the Individual Visit Scheme was introduced, allowing mainlanders to visit Hong Kong without joining a tour group. There are now more than 28 million mainland visitors every year, making up 67 percent of all tourists to Hong Kong. Tourism experts say the number of mainland tourists will exceed 40 million within the next 10 years.
Unlike tourists from other countries, who splurge on accommodation and entertainment, mainland Chinese spend most of their money in retail shops. This has transformed many Hong Kong neighbourhoods beyond recognition. Causeway Bay’s hairy crab shops have been replaced by luxury watch shops and jewellers; Mong Kok snack stalls are now currency changers. The year before Sindart was evicted, the shop received media attention because it was the last independently-owned business on its block.
“Nathan Road is now a street that caters only to the ‘free travel’ mainlanders,” says Wong, referring to tourists who come under the Individual Visit Scheme. “It started with the big chain stores moving in, which pushed all the little shops onto the back streets. That caused the rent to go up on those back streets, so the shops with lower profit margins just shut completely. It’s very upsetting.”
Wong says that ground-floor retail spaces have become too expensive for small businesses. Sindart was only able to find a new space on the first floor of a dilapidated shopping centre on Bowring Street, for which it pays HK$7,000 per month. Regular customers have found their way back to the shop, but the boom in mainland tourism hasn’t done anything for business. “Tourists from Japan come looking for our shop, but it seems mainlanders do not yet appreciate this kind of thing,” says Wong.
It’s the same story at new businesses like 18 Grams, a two-year-old Causeway Bay café that roasts its own coffee and represented Hong Kong at this month’s World Barista Championships in Vienna. “Our customers are office workers and people who live nearby,” says manager Kammie Hui. “Tourists sometimes pass by and take a picture, but they usually don’t come in.”
18 Grams was already paying more than HK$30,000 per month for its 200-square-foot space on Cannon Street, but last month, its landlord asked for a major rent hike. The shop was offered a temporary stay of execution when a new tenant could not be found, but its future is uncertain, despite its popularity. “Customers are already waiting outside when we open every morning,” says managing director John So.
Song Haiyan, associate dean of the Polytechnic School of Hotel and Tourism Management, says there is a fundamental disconnect between mainland tourists and locals. “Without these tourists, Hong Kong would suffer significantly, because tourism contributes so much to the economy,” he says. “But there is also a significant environmental impact that has to be considered. Local Hong Kong people feel they’re being overwhelmed by tourists.”
That tension has boiled over in recent months. In January, a video of an argument between locals and mainland tourists who were eating on the MTR led to an online firestorm. When a security guard at the Dolce & Gabbana store on Canton Road told a local photographer that only mainland customers could take photos of the shop’s façade, more than a thousand people picketed the boutique. Newspaper ads attacked mainland tourists as “locusts” who were damaging Hong Kong’s quality of life.
The issue has even become a talking point at the highest level of Hong Kong politics. Last month, Chief Executive C.Y. Leung said he wasn’t sure Hong Kong could sustain an ever-growing number of mainland tourists. That provoked a rebuke from Peng Qinghua, director of the central government’s Hong Kong liaison office, who told Xinhua News Agency that Hong Kong people should not “make a fuss” about mainland tourists because conflict between locals and tourists were unavoidable, given the cultural and economic differences of Hong Kong residents and mainlanders. “Given such a large-scale exchange of people, it is inevitable for there to be some clashes,” he said.
In many ways, however, the problem has as much to do with Hong Kong’s business environment as it does with tourists. Unlike New York or London, where retail leases can last as long as 10 years, the standard Hong Kong lease runs for just two years, which creates an inherently volatile retail market — and one that responds quickly to changing demands.
That demand, for the moment, is for luxury goods. According to research by Nielsen, mainland tourists spend an average of HK$12,000 per trip, mostly on cosmetics, electronics, clothing, jewellery and watches. Hong Kong’s lack of sales tax and the strength of the yuan against the Hong Kong dollar make it an especially attractive place to buy such products.
The situation is not lost on Hong Kong’s tourist authorities. “Mainland tourists are very important to Hong Kong’s tourism industry, but we realize we cannot rely on one single market for visitors,” says a spokesperson for the Hong Kong Tourism Board. Most of the HKTB’s marketing budget is spent in international markets, not in mainland China. The strategy has succeeded to some extent: the number of tourists from other parts of Asia has increased by 4.6 percent over the past year, and even recession-hit Europe and North America have sent 1.7 percent more tourists.
“We have also been doing a lot to promote things to do in Hong Kong other than shopping,” says the spokesperson. The HKTB publishes a guide to local independent businesses and it supports cultural festivals like the recent West Kowloon Bamboo Theatre, which brought together Cantonese opera, contemporary art and film in a temporary bamboo structure.
There is also a growing number of activities for tourists seeking an alternative experience of Hong Kong. Secret Tours guides locals and visitors alike through the city’s more obscure corners to explore Hong Kong’s culture, heritage and social issues. This summer, it will increase the frequency of its tours from once a month to once a week, and it recently offered its first Mandarin-language tour, which took place in Wan Chai.
“Travel agencies are very conservative and they offer very conservative tours, like going to the Peak and the harbour.,” says co-founder Josie Cheng. “As an independent company, we don’t have a lot of capital, but our strength is that we don’t need to be the same as everyone else. The demand and need for our tours growing. People enjoy are really supportive.”
It seems the spending habits of mainland tourists are changing, too. The HKTB says that visitors from Guangzhou, Shanghai and Beijing behave more like their counterparts from other parts of Asia and the West, by focusing less on shopping and more on sightseeing, dining and entertainment. “The Chinese tourists’ profile is changing towards the normal tourist profile,” says Song Haiyan.
Still, things might get worse before they get better. Rents continue to skyrocket, and ground-level rents across the city are expected to increase by an average of 12 percent over the next year. “There are obviously signs of demand and supply imbalance here and they’re getting worse,” said Helen Mak, head of retail service at Colliers, last month.
That’s bad news for businesses like 18 Grams. Rent for streetside retail space is prohibitive, and major shopping malls turn their nose up at the business because it does not have international locations, says Kammie Hui. “It’s hard for us to find a suitable space,” she says. “Everything around Causeway Bay is turning into luxury chains like [jewellery] Chow Sang Sang. If we stay, we’d have to raise our prices by a lot, and that’s not the kind of coffee shop we want to be.”
She worries about the future of Causeway Bay. “Everywhere is becoming the same — McDonald’s, Starbucks, the big chains. It’s not Hong Kong anymore.”
The above story was originally published in the Hong Kong edition of China Daily on July 6. The same day it appeared, the South China Morning Post ran an analysis of the same topic. It’s more fine-grained than what I wrote so it’s worth reading if you want more detail on the subject. The essential part was reproduced on the Hongkie Town blog. Go take a look.
Tags: Business, Community, Economics, Hong Kong, Tourism