Luxury sales sinking in Hong Kong

Luxury retail sales in China are seeing a downward trend, especially in Hong Kong, due in part to a dwindling number of wealthy tourists.

In general, the retail market is strong in China and the country saw exceptional growth in January, leading up to the Chinese New Year. In fact, French department store Galeries Lafayette, located in Beijing's Xidan district, indicated a 30 percent increase in foot traffic and strong growth in the fashion and accessories categories, reported Women's Wear Daily.

Analysts report that China's retail growth has stabilized at around 7 percent, which is adversely affecting luxury brands.

In Hong Kong, trends were almost opposite. Sales declined 14.6 percent in January, the worst since the 15.2 percent drop during the SARS outbreak in April of 2003. Sales of jewelry, watches and valuable gifts fell 44 percent. Clothing and footwear were also down 13.8 percent. Even during Chinese New Year, sales were soft in Hong Kong.

"We believe there is a structural change in the Hong Kong retail market and the current trends will further deteriorate," Mariana Kou, analyst at CLSA, told Women's Wear Daily. Kou said that increased hostility from Hong Kong residents toward mainlanders is making visitors—shoppers—feel unwelcome.

"Customers from tier one and tier two cities who used to travel to Hong Kong and overseas are shifting away from luxury brands like Gucci and Louis Vuitton to more affordable local brands," said Arre Shao, founder and CEO of online fashion company

Marks & Spencer announced it would close five store locations in Shanghai and use the money to further invest in its Hong Kong locations.

Retail sales in China are expected to grow 5 percent in 2015. As a result of the steady growth, Beijing and Hong Kong have become popular destinations for the expansion of U.S. retail chains, including Lululemon (NASDAQ:LULU), Kate Spade (NASDAQ:KATE), and Dunkin' Donuts (NASDAQ:DNKN).

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