Retailers in Hong Kong preparing to welcome Chinese mainland tourists over the Lunar New Year festive period face a real crisis: Canny shoppers don’t think the special administrative region is cool enough.
HSBC’s global co-head of consumer and retail research, Erwan Rambourg, said luxury goods are now cheaper in other markets, bringing the wealthy, sophisticated Chinese travelers to places such as Japan, Korea, and Australia.
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“There were a lot of attractions in Hong Kong for mainlanders to come in and purchase here,” Rambourg told CNBC’s “Squawk Box“. “It used to be cheaper than a lot of other places in the region. That’s not the case anymore, given the strength of the Hong Kong dollar.” The Hong Kong dollar is pegged to the U.S. dollar, which implies if the latter strengthens, the former follows.

“Price arbitrage doesn’t work anymore [in Hong Kong],” Rambourg said. “It’s actually cheaper to buy in Seoul, in Tokyo, and elsewhere.”
Between Hong Kong and Japan, and the strength of their respective currencies, he said “the difference is you reclaim VAT [Value-added tax] when you go to Japan,” which makes luxury goods slightly cheaper there.
Retail sales were also battered in Hong Kong as a result of lower consumer spending, mostly from mainland Chinese tourists. Sales were down 8.5 percent on-year in December to HK$43.7 bill...