Hong Kong August retail sales growth dropped to -23.0% y/y (nominal terms) from July’s -11.5% y/y, substantially below expectations for -14.0% y/y. This is the worst single-month y/y sales growth since records began in 1982.
HONG KONG/CHINA
After 70 years of economic progress, the second largest economy in the world now faces numerous challenges. China’s economic boom was fuelled by a large and young labour force, rapid urbanisation, large-scale infrastructure projects, market liberalisation and global trade. All of these factors have either diminished or disappeared, and domestic spending has become an important driver for growth. GDP dipped to a 27-year low of 6.2% in the second quarter, and the trade war with the US continues to put downward pressure on the economy. Rising household debt levels have also had a significant impact on consumption.
Rising gold prices and a depreciating Renminbi have made jewellery more expensive. Retailers are very price conscious and this has resulted in lower diamond content. Jewellery that is considered fast-moving in China is generally below $200.
Another effect from higher gold prices is that more jewellery recycling is taking place. Franchisees not able to sell product are sending it back to the parent company, not at full value, but at e.g. 70%.
We believe diamond jewellery retail sales took a hit in mainland China in the last quarter and is probably down by 15-20% in that period. All of the above has resulted in a much more cautious polished buying behaviour from the large retailers, with some having stopped completely.
These same retailers are being hit even harder in Hong Kong, where they have witnessed the weakest-ever y/y retail sales on slumping tourist arrivals.
Hong Kong August retail sales growth dropped to -23.0% y/y (nominal terms) from July’s -11.5% y/y, substantially below expectations for -14.0% y/y. This is the worst single-month y/y sales growth since records began in 1982.
Almost all categories exhibited slower year-on-year growth. Sales of jewellery, watches and luxury items – a particularly tourism-sensitive category — showed the largest slowdown, at -47.5% y/y vs. July’s -24.3% y/y.
INDIA
Macro-economic conditions, and high gold prices are creating a lot of pressure on diamond retail in India. Gold has become an attractive asset class for Indians.
Wholesalers of diamonds are complaining of very slow uptake at retail.
