The golden age for Hong Kong's retail industry has ended as Chinese tourists become more frugal.

• It is predicted by analysts that the shopping craze in Hong Kong will not return "for a long, long time," given that Chinese tourists are becoming more cautious with their spending.
• Government data published Friday shows that the city's retail sales have decreased by 7.3% in the first seven months of 2023 compared to the same period in the previous year.
• Despite a 52.2% increase in visitor arrivals during the period.

Since the pandemic, Hong Kong's retail industry has been struggling and experts predict it may take several years for it to recover.

Despite a 52.2% increase in visitor arrivals, the city's retail sales have decreased by 7.3% in the first seven months of 2023 compared to the previous year, according to government data released on Friday.

In 2023, Hong Kong was renowned as a shopping haven, especially for mainland Chinese tourists, who frequently left luxury stores with numerous bags in hand. Mainland China contributed to 89% of the HK$2.84 billion spent by same-day visitors and 67% of the HK$119.1 billion spent by overnight visitors in the same year.

Analysts predict that the golden days will not return "for a long, long time" as mainland Chinese become more cautious with their spending due to economic uncertainty.

The decline in spending by middle class Chinese tourists in Hong Kong can be linked to the economic slowdown, which was triggered by the property market downturn, shift in consumer behavior, increased emphasis on saving due to uncertain job prospects, and changing travel preferences, according to Christine Li, head of research for Asia-Pacific at Knight Frank.

In 2023, overnight tourists from the mainland spent 6,495 Hong Kong dollars ($833) per capita, an increase of 8.4% from 2019 levels. However, same-day mainland Chinese visitor spending decreased by 37% to only HK$1,383 in 2023.

"Chinese consumers are prioritizing experiences over material goods post-Covid, as they seek to reconnect, make up for lost time, and live in the moment. This shift in values has resulted in weaker sales in high-end luxury goods, particularly in Chinese consumer spending."

The economic situation on the mainland has influenced how money is spent in other areas, with analysts highlighting the popularity of "zero-dollar" tours where travelers pay in advance for transportation, accommodation, and meals. Tourists with limited budgets may not spend much beyond the prepaid expenses covered in these packages.

"According to Simon Smith, Savills' regional head of research and consultancy for Asia Pacific, who spoke to CNBC, individuals take photos for their online accounts but do not spend money. This is different from the past when they spent more money in shops and restaurants. Smith stated that the golden era for Hong Kong's retail market has ended."

Last year, Hong Kong received 34 million tourists, a decrease of 31.11 million from 2019, with 26.8 million coming from the mainland.

Even Hong Kong residents are increasingly opting to shop in Shenzhen, which is just 14 minutes away via high speed rail.

In Shenzhen, the price is a third of what it is in Hong Kong. Smith stated that the city offers great food, good service, and modern shopping malls. He also mentioned that many young professionals, who are typically the biggest shoppers, have left Hong Kong to emigrate.

When visiting Hong Kong, even wealthy Chinese have reduced their luxury spending, as noted by Knight Frank's Li.

The decline in luxury spending by mainland Chinese tourists has had a profound effect on Hong Kong's retail sector, which heavily relied on high-end purchases such as watches, handbags, and jewelry from these tourists.

Unfortunately, Hong Kong is currently facing some difficult changes, causing tourists and locals to have a different perspective, according to Nick Bradstreet, Savills' head of Asia-Pacific retail, as he spoke to CNBC.

Bounce back?

While experts predict that it will take a considerable amount of time for Chinese consumer confidence to recover, there is optimism that Hong Kong's retail sector may experience a resurgence. However, the focus should shift away from luxury spending.

"Li stated that the focus is shifting from luxury items to creating engaging and memorable shopping experiences that resonate with a broader range of consumers, and recovery is "feasible.""

CBRE's Asia-Pacific research head, Henry Chin, expressed optimism about the recovery of the city's retail industry, but cautioned that it would take "longer than usual" due to the current cyclical downturn and structural challenges in China.