Despite some semi-rosy forecasts that have seen companies like LVMH remain cautiously optimistic about their near-future prospects in the Greater China region, recent political events have proven that luxury brands will likely have a tough road ahead in mainland China (as well as Hong Kong) for quite some time.

Brands and luxury groups shouldn’t expect things to get significantly better soon, not just in terms of spending by shoppers in China, but also in previously reliable markets like Western Europe or North America. According to Forbes, Hong Kong accounts for 11 percent of Richemont’s total global sales, while the city accounts for 9 percent of Burberry’s sales, 8 percent of Kering’s, and 6 percent of LVMH’s. It also provides around 6 percent of total sales for brands like Moncler, Tod’s, and Prada, driven primarily by purchases from mainland Chinese day-trippers or tourist shoppers.

One of the biggest question marks for major brands is what the long-term effects of the ongoing Hong Kong protests will be. While Hong Kong will always be a major market for luxury brands, they are undoubtedly feeling the sting of store closures due to mainland Chinese shoppers opting to do their high-end shopping in other cities. And the lingering sense of uncertainty about how long the protests will last certainly isn’t helping matters.

L’Occitane Vice-Chairman Andre Hoffmann recently summarized the situation by saying, “Hong Kong has been challenging… We lost several trading days in the quarter due to the protests. Chinese tourists spending in our shops has declined. All these are a bad cocktail for our business.” But some brands have made their prospects in the city even murkier thanks to badly timed scandals that have forced them to make very public apologies in mainland China (these include Versace, Coach, Givenchy, and Swarovski, which all recently produced luxury items or marketing campaigns that “hurt the feelings” of Chinese authorities.) For Hong Kong natives who sympathize with the protests, the perception that brands are actively groveling to Beijing at this time could also leave a mark that lasts long past the current protests.

But Hong Kong is just one area where brands are in the dark right now. Luxury brands face big questions in mainland China caused by a slowing economy and a recent currency devaluation — both primarily caused by the ongoing U.S.-China trade war. Most brands will likely need to raise prices in mainland China to account for a devalued yuan, and with no sense of certainty that the yuan won’t continue to lose value, brands will be less likely to invest in store renovations and cosmetics brands will likely think twice before investing in new products aimed at the China market.

Meanwhile, the future of the outbound Chinese tourist shopper — whose high-end hauls have arguably powered the luxury market over the last decade — is another question mark during this year of uncertainty. Although Chinese shoppers continue to travel and spend, where they’re doing it is changing quickly. While Japan expects a solid year of Chinese tourist arrivals and purchases, the outlook is less than stellar in Thailand, and the U.S. is expecting a particularly large decline in Chinese arrivals and shopping that could stretch on for months to come. So the question for brands wanting to cater to this demographic becomes: Where should they focus their efforts?

Brands must also reckon with a general decline in Western brand dominance in China, particularly among the country’s younger shoppers. Although it is far too early to say whether or not local high-end brands can fully supplant the entrenched luxury players in China, competition is increasing in this market. As the New York Times noted in its overview of Alibaba’s recent financial results, “Analysts say the trade war with the United States has prompted shoppers to become more selective, and many have switched to buying domestic brands that they feel are of high quality.” Particularly in the cosmetics and skincare market, Western brands in China face stiff competition from agile, digitally savvy brands from South Korea, Japan and — increasingly — even China itself.

Now the open question for most major brands is how to approach the Greater China market — Hong Kong in particular — over the rest of 2019 and 2020. As many luxury commentators see it, regardless of how long the protests last, the status of Hong Kong as a financial, hospitality, luxury, and fashion epicenter has been altered; but the degree to which it’s been altered remains to be seen. While some say this summer’s protests mean that it’s time for corporate businesses to “stick a fork” in Hong Kong, others are more cautious, pointing out that Hong Kong is a large city and the protests, while hugely significant and sizeable, are still limited to specific parts of the city and are limited in their disruption.

The type of sentiment that says Hong Kong is finished as a major business center and will lose ground to Singapore likely takes too short a view of the city’s history. While this summer’s protests have perhaps been the longest and most violent in the recent past (as compared to the “Umbrella Revolution” of 2014), major brands will likely face some short-term pain but a long-term outlook that ultimately settles back to where it was at the beginning of the year (in other words, a less prosperous yet still significant ‘normal’).

A long-term decline in sales in Hong Kong would be less due to mainland Chinese tourists’ fear of protests than it would factors like how well the Chinese economy is doing overall, including the general appetite for luxury travel and shopping. As such, brands shouldn’t — and likely won’t — make immediate plans to pull back their Hong Kong investments or presence. Some businesses, particularly those in the hospitality market, are historically too invested in the market to ever cut back there anyway. The most likely course ahead is that brands will try and stay under the radar and limit their revenue damage as much as possible while they wait for things to settle into the new normal. In essence, the luxury market in Hong Kong is not “done” by any means, even if it looks poised for a weak 2019 that could bleed into 2020.





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