“When the facts change, I change my mind. What do you do, sir?” - John Maynard Keynes (1883-1946)
Thanks in no small measure to the magnanimity and accommodativeness of the editor of this esteemed magazine for international jewellery professionals, brainchild after brainchild of yours truly have been able to make their debut in these pages over the years. Thus, for example, in the March issue, I dwelt on the continuing beguilement of diamonds. And in the issue that helped send 2013 off into the annals of history, this scribbler waxed optimistic about 2014 insofar as both the domestic and external sales prospects of Hong Kong’s jewellers are concerned, even dubbing – though not without caveats and reservations – the new-year-to-be “a win-win proposition”.
There’s many a slip ‘twixt cup and lip
That prognosticative piece was compiled late October with concrete data available then only up to and including August at the most. Crystal gazing is always a hazardous exercise but probably no more so in times as vicissitudinous as those of our own. And as the idiom goes, “there’s many a slip ‘twixt cup and lip.” That is to say, nothing is completely certain until it really happens because things can easily go-wrong. And for 2014, go wrong things did and bruised was at least one ego, namely that of mine. But first, a brief survey of how things have gone awry hitherto this year is in order.
At the time of writing – towards the end of July – the requisite data was available only up until May (if that), though there was impressionistic hearsay galore. Both statistical and anecdotal evidence make for uninspiring reading. Thus, in the first five months of 2014, the retail sales value of jewellery, watches and clocks, and valuable gifts slumped 14.3 percent from the same year-ago period; the only consolation was that January through May 2013 was a formidably strong base period for comparison (nominal jewellery sales soared 30.7 percent year-on-year during those five months).
In volume terms, jewellery retail sales also fell 10.8 percent. Only early in the New Year – January and February – were gains recorded year-on-year, but they were unconvincing ones at that. All this rendered jewellery the worst-performing category among its peers in the government’s retail sales numbers. And if the talk of the town is to be believed – and to an appreciable extent it should be, hailing as it is from usually reliable industry sources – sales have not picked up ever since; if anything, they have continued to drift lower in the ongoing summer months.
Jewellery exports treading water
If jewellery sales at home have been – for want of a better adjective – horrendous in 2014 to date, what of shipments abroad? They are a mite more comforting but, regrettably, the emphasis is on “a mite” rather than “more comforting”. In the first five months of this year of the horse, total exports of jewellery managed to edge 1.7 percent higher compared with the same 2013 period, when they rose a reasonably respectable 11.5 percent year-on-year. Thus far into 2014, exports can be described as treading water (i.e. making scant, if any, progress) but at least they have not been decimated as appears to have been the case with jewellery sales within the territory.
Sobering is the thought, however, that external sales, at HK$55.5 billion in the 12 months through May, were just about half the size of jewellers’ domestic receipts (of HK$110.8 billion). This suggests that in broad terms, they have to be doubly as brisk as internal retail sales to generate, roughly, the same rejuvenating effects on industry performance. Still, for as long as the eye can see, they are probably where the locus of the industry’s sales pitch should be.
Tourist arrivals face clouded outlook
You may ask whence this observation came. Well, as we are all probably only too aware, the extent to which domestic retail sales of jewellery depend on tourist outlays cannot really be exaggerated. And again as we are all cognisant, the mainstay of tourist arrivals and, by inference, expenditures is visitations by our compatriots north of the border. In the first five months of this year, tourist arrivals hailing from the Mainland have slowed down more than visitors arriving from elsewhere in the world: China arrivals grew 17.6 percent year-on-year during the period, down from the 20 percent gain in the same 2013 period.
They still outgrew visitations to Hong Kong from the other corners of the globe. And at 18.42 million, they still accounted for a whopping 76.7 percent of the overall tourist arrivals of 24.04 million. It should be noted, however, that overall tourist arrivals in the five months through May actually increased 13.6 percent, up slightly from the year-earlier rise of 13.2 percent, suggesting that the allure of the Hong Kong Special Administrative Region (HKSAR) for non-China visitors has not diminished significantly. But looking ahead, the outlook is not nearly as sanguine.
For one thing, for some time now the HKSAR has been shrouded in socio-political unsettledness and uncertainty over universal suffrage vis-àvis election of the chief executive in 2017. The international media have devoted an increasing portion of their attention and coverage to the territory’s politicisation and – dare I suggest – polarisation on the issue; the latter is highlighted in particular by the toing and froing between supporters of the Occupy Central movement and the henchmen of a diametrically opposite countermovement.
IVS long in the tooth
The upcoming months promise more of the same; tension and strain between the extreme rival groups could well increase and reach a crescendo until a denouement is reached one way or another. Potentially or even in actuality, this may have a dampening influence on tourist visitations and, by extension, the territory’s retail sales, paramount among them those of jewellery. Equally important, the Individual Visit Scheme (IVS), which has arguably been the be-all and end-all of Mainland Chinese visitor arrivals in HK in recent years, is now long in the tooth, having been introduced and augmented for more than a decade now.
With the territory’s tourist absorption capacity now openly questioned, at least in some quarters, and with the HKSAR and central governments now jointly and severally looking in earnest into the issue, the next most likely change would be a consolidation or even pullback of the IVS. As it is, the IVS has already been put on hold pending investigation. And prior to that, it had been expanded to the inner, more rustic and less well-off regions of the Mainland. Increasingly, therefore, we are not getting as much oomph on a per-capita basis from China-sourced visitations. Of no small consequence, also, is the fact that the nationwide austerity campaign driven by the powers that be on the Mainland has been longer-lasting and more sweeping than almost everybody expected.
Global economy a serial disappointment...
Against this backdrop – and counterintuitive as it may seem, given current, uninspiring global economic conditions – Hong Kong jewellers will do well orientate more of their marketing and sales efforts to overseas. As Bank of Canada governor Stephen S Poloz has remarked of late, the world economy has been “a serial disappointment” in recent years. Without going into the figures and specifics, the International Monetary Fund has most recently scaled down its growth forecasts for the global economy for 2014 and even for 2015, with nary any major economy – developed or developing alike – escaping unscathed.
The good news is that our motherland’s economy appears to be well on its way to a soft landing, with real gross domestic product growth bubbling just above 7 percent. But in the light of other undertows (such as the aforementioned prolonged austerity drive) that are ruling the roost at least for now, one would not well-advised to hold one’s breath for any meaningful boost therefrom to Hong Kong’s jewellery sales. The performance of the United Kingdom economy has, meanwhile, topped the worst of expectations. It would seem, however, that it is mainly propped up by a booming housing market and related sectors and industries, not luxury goods like jewellery.
...but US economy looking relatively hopeful
Across the Atlantic, in the United States, GDP actually fell at an annualised real rate of 2.9 percent in the first quarter. But the significance of the HKSAR’s re-exports-heavy jewellery exports to the United Stated cannot be underestimated, as in the first five months of this year, they accounted for 27.9 percent of our overall sales abroad. In the five months through May, total jewellery shipments to America slid 8.5 percent to HK$6.2 billion over the same 2013 period; the latter was admittedly a strong base for comparison, having itself gone up by 16.2 percent year-on-year. That said, all this would, with good reason, strike readers as a rather grim background and even a paradoxical one if one were to exhort HKSAR jewellers to redouble their sales pitch to the US market.
But this is precisely what I am inclined to do, for I am of the persuasion that the dismayingly poor showing of the US economy in the first three months or more of this year was an aberration wrought predominantly by an extraordinarily cold – and long – winter, that America has seen its cyclical worst and that it is poised to grow with increased vigour from here on end. (The breaking news at the time of writing was that revised figures showed US real GDP had shrunk 2.1 percent in the first quarter, lesser than the preliminary estimate, while rebounding strongly – by 4.0 percent - in the second quarter.) Let me make one thing perfectly clear, though: I am not predicting in any way, shape or form that the US economy will stage a comeback with a vengeance – just that its trajectory henceforth will be up, even if only moderately.
Several reasons come to mind. Firstly, the notorious fiscal drag that dogged America in years past is now receding into history. Job gains are now noticeably gathering momentum and spreading from part-time to full-time employment. Even those classified as long-term unemployed have assuaged in numbers – and meaningfully so. Consumer confidence is increasing as the job picture brightens, the housing recovery continues and asset price inflation continues to line the pockets of households whose propensity to spend is thus significantly enhanced.
US market to assume added significance As the London-based Financial Times reported in early June, the United States registered in 14 April successive months of growth in jewellery sales. This marked a turning point in the fortunes of the luxury industry. The outcome was symptomatic of the nation’s emergence as the consuming locomotive in the luxury industry this year. As sales to Chinese buyers slowed, jewellery, a mainstay of discretionary outlays, has become one of the swiftest-expanding market segments. Jewellery is the best-situated luxury goods category in the “new normal” for the industry, with accessories falling not too much behind, then watches.
Further, jewellery has the benefit of being viewed as an investment. The luxury sector is entering a phase where there is a disappearance of the sort of explosive growth witnessed in China in recent years. Mature markets are demonstrating greater resilience in the face of crises, meaning that the trend will be more stable, with growth of 4-6 percent per annum over the next several years. In this way, the United States has emerged as the engine of luxury growth.
Conclusion
Hong Kong jewellers should never be unheedful of the role and significance of the territory’s China connection. But at the present juncture, a tactical shift to those markets whose economic momentum and recovery potential have more to offer than our consolidating and reforms-preoccupied motherland is highly warranted and strongly recommended. The United States is the leader of the pack. We should also not lose sight of Continental Europe and Japan where monetary easing and fiscal activism will, for quite some time to come, be the order of the day. As the saying goes, we should be “leaning on the motherland and face the world”. (Photo courtesy: Tiancheng International)
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