An empty hallway in Harbour City on the morning of June 2. The Tsim Sha Tsui mall is usually packed with mainland shoppers during public holidays. Photo: Chen Tian/GT

The Harbour City, located in one of Hong Kong's busiest shopping districts, Tsim Sha Tsui, is usually packed with Chinese mainland tourists who would squander tens of thousands of yuan on designer handbags, gold jewelry and high-end skincare products.

However, the 185,804-square-meter mall, which houses luxury brands such as Louis Vuitton, Chanel and Rolex, was far from crowded during the Dragon Boat Festival holidays from May 31 to June 2.

In late morning on June 2, fewer than 10 shoppers lined up outside the three-story Chanel store inside the mall, compared with some 30 people a day during the public holiday back in 2012. And in a nearby Salvatore Ferragamo store, only three pairs of mainland shoppers were trying shoes.

Hong Kong's retail sales value tumbled by 9.8 percent year-on-year in April, the city's Census and Statistics Department reported on June 3. In April, 4.7 million mainlanders entered the city, up by 10.9 percent from April 2013, the Hong Kong Tourism Board said. The growth, however, was 6.6 percentage points lower than a year earlier.

While retailers scramble to attract mainland shoppers, some Hong Kong residents welcome the change amid recent tensions between locals and mainlanders.

The government of the Hong Kong Special Administrative Region, therefore, is faced with the quandary of whether to attract more mainlanders to boost the local economy, or to cut the number of travelers to pacify conflicts.

Sharp surge 

Hong Kong, which has a population of 7.2 million, received 40.7 million visitors from the Chinese mainland last year, up 17 percent from 2012, according to the Tourism Commission of the city's Commerce and Economic Development Bureau.

The double-digit annual jumps in the number of mainland tourists started in 2004, the year after the local government approved the Individual Visitor Scheme (IVS), which allows mainlanders to enter the city as individual tourists instead of traveling on a business entry permit or as part of travel groups. In 2004, 12.2 million mainlanders traveled to Hong Kong.

Alex Jiang, who owns a technology company in South China's Fujian Province, told the Global Times on June 2 that he visits Hong Kong at least once a year.

"The shopping environment is wonderful, the products are cheaper compared with the mainland, and the malls have a wide variety of brands for me to choose from," said Jiang, who was on a two-day trip on an IVS to Hong Kong with his wife and son during the Dragon Boat Festival holidays.

Jiang said he spends at least 10,000 yuan ($1,599) on buying watches and suitcases for himself, skincare products for his wife and toys for his son during each visit.

"Hong Kong is the paradise for shopping in Asia," he said. 

Unlike the mainland, the Hong Kong government does not levy value-added tax, making a wide array of jewelry, luxury and consumer electronic products up to 30 percent cheaper than in the mainland.

Although Hong Kong retailers recorded years of fat profits thanks to mainland visitors' seemingly insatiable shopping appetite, their over-reliance on mainlanders could be dangerous, Denis Wang, director of the School of Hotel and Tourism Management at the Chinese University of Hong Kong (CUHK), told the Global Times on May 30.

"The retail sector in Hong Kong is addicted to mainland tourists. This won't work out for the city in the long run," Wang said. "I hope the retail industry has the real strength to attract demand from places other than the mainland. A healthy adjustment is needed."

In fact, the adjustment seems to be under way.

Unexpected drop

Randy Tang, a manager from Fu Lai Wah Jewellery Co in Hong Kong's Sham Shui Po district, told the Global Times on June 2 that the store's performance in the first five months of 2014 was far from rosy.

"The number of mainland shoppers to our store shrunk by 10 percent this year," Tang said. "Our sales in the first few months of this year plummeted by 30 to 40 percent from last year."

Tang said mainland shoppers to his store, a 40-year-old shop that sells gold and jade jewelry, are less generous when buying gifts for bosses and colleagues. Other gold retailers at busy shopping districts, such as Tsim Sha Tsui, Causeway Bay and Mong Kok, are experiencing even sharper drop in sales.

Hong Kong's retail sales value fell 2.2 percent year-on-year in February, the first drop since August 2009, when the global financial crisis swept over the Asian financial hub. About 3.5 million mainland visitors entered the city in February this year, compared with 4.3 million in January, according to the Hong Kong Tourism Board.

The retail sales value sank another 1.5 percent in March and 9.8 percent in April, the Census and Statistics Department said.

"Mainland shoppers used to snap up HK$100,000 ($12,898) to HK$200,000 worth of jewelry without bargaining," Tang said. "That didn't happen this year. They just spend around HK$10,000 to buy some small necklaces and then leave."

The value of sales of jewelry, watches and clocks dipped by nearly 40 percent year-on-year in April, and the sales value of electrical goods fell by 8.3 percent in May, the department said in a statement.

One reason behind the drop is that mainland shoppers are getting thriftier.

Early last year, China's central government launched an intense anti-extravagance campaign, aiming to curb officials' spending use of public money to buy gifts for bosses and business partners.

"So the mainland shoppers, many of whom are deep-pocketed officials, have refrained from spending big in Hong Kong," said CUHK's Wang.

Also, a number of incidents have added pressure to the strained relations between mainlanders and Hong Kong locals.

In April, a mainland couple clashed with a Hong Kong man after he filmed the couple's child urinating on a Mong Kok street. And in February, some 100 Hong Kong locals took to the street in Tsim Sha Tsui to protest against mainland visitors, who were accused of "overwhelming the city and taking its resources," in a so-called anti-locust campaign.

Chen Jing, a Beijing resident, told the Global Times on Sunday that she is not willing to contribute to Hong Kong's retail sales.

"I'm not stupid," Chen said. "Why would I help Hong Kong develop its economy while being discriminated against by some locals? I'd rather go to Europe or the US to buy the luxury products I need."

The number of mainland customers to Hong Kong dropped by 2.5 percent during the Dragon Boat Festival holidays, Gregory So, Hong Kong's Secretary for Commerce and Economic Development, was cited as saying in a report by news portal sina.com.cn on Friday. That was the first time in four years that the number of mainland visitors flocking to Hong Kong dropped during that period, the report said.

A saleswoman of the Causeway Bay branch of skincare and cosmetics retailer chain Sasa, which is popular among mainland shoppers for its deep discounts, told the Global Times that she felt a "notable drop" in mainland shoppers this year.

"When there's a protest against the mainland government or visitors on the street, we receive even fewer customers than usual," said the saleswoman, who wished to remain anonymous.

Few shoppers show up on the Canton Road in Tsim Sha Tsui in the morning of June 2.  Photo: Chen Tian/GT

Dealing with decline

Guo Jing, who owns a clothing store in the Yuen Long district, said she is irritated every time a mainland shopper pays a visit.

"They are noisy, and they quote unacceptably low prices when bargaining," Guo told the Global Times.

Guo, who moved from Beijing to Hong Kong 26 years ago, said she hopes there'll be fewer mainland shoppers in the city.

"My life quality has  worsened as the number of mainland visitors soars," she said. "The streets are so crowded with shoppers. I have nowhere to buy daily necessities since corner stores were replaced by gold shops."

Hong Kong Chief Executive Leung Chun-ying said on May 27 that the city is seeking advice from the public, businesses and the tourism sector on cutting the number of mainland visitors under the Individual Visitor Scheme (IVS) by 20 percent annually, the South China Morning Post reported.

Michael Tien Puk-sun, Hong Kong's legislative counciler, told the Global Times on June 2 that the sharp growth of mainland visitors under the IVS was unexpected by the local government.

"The Hong Kong and mainland governments have let the number of IVS tourists surge without putting a limit. That turned the IVS, which should be a good thing, into a bad thing," said Tien, who is the billionaire chairman and founder of clothing retailer G2000 Group.

"Hong Kong is running out of capacity, in terms of public transportation and retail space, to cope with the surge in visitors," Tien said.

Limited retail spaces leads to an uptick in retail rents. According to Tien, the monthly rent of one of his G2000 stores at Causeway Bay rose from HK$1 million ($129,004) to HK$2.3 million within a year.

Guo, also feeling the pressure of soaring retail rental, had to close down three of her clothing stores in the past 10 years.

But Tien admitted that despite Hong Kong's limited capacity, a 20 percent cut on IVS is too drastic.

"The Hong Kong and mainland governments should not curtail the IVS program, but limit the annual increase in the number of mainland visitors below 10 percent," Tien said.

Gregory So, Hong Kong's Secretary for Commerce and Economic Development, said on January 17 that the city will have the capacity to receive 70 million visitors in 2017 and 100 million in 2023.

Residents of 48 cities in the mainland, including first-tier cities like Beijing and Shanghai as well as provincial capitals, can enter Hong Kong twice a year with the IVS. But residents in Shenzhen, which borders Hong Kong, are allowed to enter the city more than twice a year with a special IVS.

The central government should put a cap on the number of visits that Shenzhen residents could pay each year, Tien said.

"It is very easy for them to visit Hong Kong, so they are definitely not those who buy from retailers the most," he said.

The Hong Kong Retail Management Association, however, said on May 27 that a slower growth or stagnation in the number of mainland visitors will "severely affect the livelihood of the 26,700 workers employed in the retail sector, hinder the long-term development of that sector, and cause a ripple effect that reduces domestic consumption and thus impact Hong Kong's overall economic development."

Looking ahead

The first impact of the challenge on Hong Kong's retail sector would be a potential drop in rents, said Helen Mak, senior director of retail services at Colliers International Hong Kong.

"The rental at the Causeway Bay will plummet by 5 to 10 percent in the next 12 months, and the rents in Tsim Sha Tsui, Mong Kok, and Central will drop by 5 percent within a year," Mak told the Global Times on Tuesday.

As sales wane, retailers are putting more effort into luring mainland shoppers.

Tang from Fu Lai Wah Jewellery, for example, said his company is hiring mainland celebrities as brand ambassadors and putting up advertisements in mainland travel agencies' brochures to attract tourists.

"We are still optimistic," Tang said. "Mainland shoppers will continue to be our major target. We also hope to build up more repeat customers."

Hong Kong seems to be losing mainland customers to neighboring Macao, which received 551,957 visitors from May 1 to 3, up 20.3 percent from a year ago, Macau Business Daily reported on Thursday.

According to Mak, Macao's Las Vegas-style Cotai Strip filled with casinos and resorts is a major draw for mainlanders.

"While visitors can only shop in Hong Kong, they can shop, gamble, spa, swim and enjoy a family day in Macao," she said. "The mainlanders' expectation for a holiday is escalating."

Mak suggested Hong Kong developers build luxury resorts in the Lantau Island, where the city's airport is located, and develop more malls in Lok Ma Chau, right by the Shenzhen-Hong Kong border.

"If the local government doesn't make any move to expand its retail space, Hong Kong will lose its competitiveness in bringing in mainland tourists," she said.

Nevertheless,  Denis Wang, director of the School of Hotel and Tourism Management at the Chinese University of Hong Kong, said he is confident about Hong Kong's tourism industry in broad terms.

"Instead of seeking pleasure, an increasing number of mainlanders visit Hong Kong for a specific purpose, such as seeing a doctor, receiving an education or buying financial products," he said. "The city's competitive advantages, such as its vicinity to the mainland and the high rank of its universities, will hold firm in the future."