Hong Kong's retail sector has been struggling for the reason that pandemic and analysts say it could take years to get well.

The city’s retail sales fell 7.3% in the primary seven months of the 12 months in comparison with 2023, in response to Government data released on Friday. And this despite a large 52.2% increase in visitor numbers in the course of the period.

The city was once hailed as a shopping paradise, especially for tourists from mainland China, who often emerged from luxury stores with multiple bags in hand. Mainland China accounted for nearly 90% of the HK$22.16 billion (US$2.84 billion) trade. issued by day visitors and 67% of the HK$119.1 billion spent by overnight visitors in 2023.

But analysts said the golden days wouldn’t return “for a very, very long time” as mainland Chinese tighten their belts amid economic uncertainty.

“The lower spending by middle-class Chinese tourists in Hong Kong can be attributed to the economic slowdown – triggered by the downturn in the property market, changing consumption habits, an increased focus on saving due to difficult employment prospects and changing travel preferences,” said Christine Li, head of research for Asia Pacific at Knight Frank.

In 2023, overnight tourists from the mainland spent 6,495 Hong Kong dollars (US$833)) per capita, a rise of 8.4% from 2019. However, same-day spending by Chinese visitors fell by 37% to simply HK$1,383 in 2023.

“Post-Covid, mainland Chinese consumers are placing more value on experiences than on material goods, driven by a desire to reconnect, make up for lost time and live in the here and now,” Li said. “This shift in values ​​has led to weaker sales in the high-end luxury goods sector, which is particularly noticeable in Chinese consumer spending.”

Concerns in regards to the economic situation on the mainland have also affected the best way money is spent elsewhere. Analysts pointed to the recognition of “zero-dollar” tours, where travelers pay up front for transportation, accommodation and meals. Tourists on a budget may not spend way more than the prepaid expenses covered in these packages.

“They're taking photos for their online accounts, but they're not spending money. They're not spending as much money in shops or restaurants as they used to,” Simon Smith, Savills' regional research and advisory director for Asia Pacific, told CNBC. “The golden era for Hong Kong's retail market is over. That's the reality.”

Data from the Hong Kong Tourism Board showed that the town welcomed 34 million tourists last 12 monthsincluding 26.8 million from the mainland. This is a big decrease in comparison with 55.91 million arrivals from overseas in 2019Of these, 43.77 million come from mainland China.

Smith noted that even Hong Kong residents are increasingly shopping in neighboring Shenzhen, just 14 minutes away by high-speed rail.

“It's a third of the price in Shenzhen. You get great food, good service and modern shopping malls,” Smith said, adding that many young professionals – often the largest shoppers – have emigrated from Hong Kong.

Even wealthy Chinese have in the reduction of on spending on luxury goods during their visits to Hong Kong, said Li of Knight Frank.

“The decline in mainland Chinese tourists' spending on luxury goods has had a profound impact on Hong Kong's retail sector. Hong Kong's retail sector, which was heavily dependent on luxury purchases such as watches, handbags and jewelry by mainland Chinese tourists, faced significant challenges,” she said.

“Hong Kong is unfortunately going through some difficult adjustment processes and tourists and locals now have a very different mindset,” Nick Bradstreet, head of Asia Pacific retail at Savills, told CNBC.

Although analysts imagine that it would take a protracted time for consumer confidence in China to get well, there may be hope that Hong Kong's retail sector could get well. However, the main target would wish to shift away from luxury consumption.

“The focus is shifting from luxury items to creating engaging and memorable shopping experiences that resonate with a wider range of consumers,” Li said, adding that a recovery is “doable.”

Henry Chin, head of Asia-Pacific research at CBRE, was more optimistic about China's retail recovery, but warned that it “will take longer than what we have seen in past cycles” as a result of the present economic downturn and structural challenges in China.

In an effort to win back tourists, Hong Kong is asking its service staff to be more polite and smile. But higher prices and competition from up-and-coming Shenzhen are the larger problems, experts say.

The glitzy financial hub has long been known for its luxury shopping, dining and nightlife, but visitor numbers have yet to recuperate to levels following years of disruption attributable to social unrest and the Covid-19 pandemic.

In response, the Hong Kong government launched a campaign called “Let’s go the extra mile“ – Encouraging frontline staff and the public to show good hospitality and “Strengthening Hong Kong’s brand as the best tourism destination.”

At a press conference last week he said: Chief Executive John Lee urged residents to be more polite, smile more and “make a special effort to promote Hong Kong hospitality.”

The initiative comes after data showed A total of 24 million visitors in the first four months of the year was still only 60% of the level of the same period in 2019.

Although these numbers represent a significant increase from last year, experts warn that there are bigger obstacles to a full recovery than Hong Kong's grumpy residents.

“One of the town's biggest problems is kind of simply that we’re expensive,” says Allan Zeman, chairman of the Lan Kwai Fong Group, the largest property owner and developer in Hong Kong's famous Lan Kwai Fong nightlife district.

Hong Kong's currency is pegged to the US dollar, which benefits the city's status as an international financial center, but it can also make for an expensive place to live compared to many other Asian economies, especially given the high interest rates and strong US dollar.

“Tourists are finding that other places like Shenzhen and Japan are very, very cheap in comparison,” said Zeman, who also serves as an adviser to the Hong Kong government.

This dynamic is especially true for travelers from mainland China. Chinese Yuan loses significant value against the US dollar and the Hong Kong dollar in recent months.

At the same time, Zeman said mainland Chinese make up a larger share of tourists in the city as other nationalities have been slower to return. He said this poses a problem for local businesses as mainland Chinese tend to spend less due to travel preferences, shorter stays and tighter budgets amid economic problems at home.

While the Hong Kong Culture, Sports and Tourism Department expects an increase in tourist numbers this year, the department estimates that per capita spending by overnight visitors will fall to HK$5,800 ($742.64) from HK$6,939 last year. according to the 2024 budget.

LKF, a popular tourist destination, was hit particularly hard when Hong Kong's borders were closed during the pandemic.

Although many businesses in the area have recovered well, according to Zeman, there are currently still some unused spaces – which was a rarity before the pandemic.

Conversely, locals are making more and more trips to the neighboring mainland city of Shenzhen, says economist Simon Lee Siu-Po, honorary member of the Asia-Pacific Institute of Business at the Chinese University of Hong Kong.

“Both have become equally important problems for Hong Kong,” he said.

While the city's borders were closed during the pandemic, nearby Shenzhen continued to develop into a top-tier Chinese city, Lee said. And newly built high-speed trains and a massive sea bridge have made that journey more convenient than ever.

Shenzhen offers a wide range of dining, entertainment and shopping options that can now compete with Hong Kong, Lee said, adding that prices for goods and services in the city are sometimes up to two or three times cheaper.

This dynamic explains why thousands of Hong Kong residents flocked to the Shenzhen border for the Easter holidays at the end of March., Leaving the financial center Restaurants, bars and shopping centers emptyin response to local media.

During the complete month of March, the town with 7.3 million inhabitants experienced 9.3 million residents leave from its passenger traffic control points. Government data shows This was the highest monthly number of departures since at least 1997, when the city was transferred from British rule to Chinese sovereignty.

Meanwhile only approx. 3.4 million visitors got here to the town in the identical month.

These trends have taken their toll on Hong Kong businesses. Retail sales proceed to fall as local media reports about rapid closure of restaurants.

According to a recent survey conducted by the Hong Kong Small and Medium Enterprises Association, 70% of small and medium-sized enterprises in the city reported a decline in business performance compared to pre-pandemic levels.

In addition to campaigns such as “Let's Go The Extra Mile”, the Hong Kong authorities have also HK$1.09 billion put aside for city-wide events akin to fireworks to spice up tourism and spending.

While the funds will help, fighting high prices and competition from Shenzhen would require way more drastic efforts, said Lee and Zeman of LKF.