Pro-democracy protests in Hong Kong could hit the sales of luxury goods makers as mainland Chinese tourists shun the region and buy their expensive items elsewhere, analysts warned.
Big discounts on items such as watches and handbags had typically attracted mainland Chinese visitors to spend on luxury in Hong Kong, where they make up 70 percent of purchases. But disruption from the protests has exacerbated a long-term trend of declining Chinese visitors to Hong Kong which will affect top luxury companies.
"The impact of the Hong Kong protests for luxury goods has been that they have created a climate in which mainland Chinese nationals feel uncomfortable, and as such curtail or cancel their travel to Hong Kong," Bernstein Research said in a note on Friday.
Richemont, Swatch to suffer
Richemont, owner of high-end watch brands like Piaget, and Swatch, which has Omega among several watch brands in its portfolio, are most exposed with nearly 20 percent of sales in Hong Kong. A 20 percent hit to luxury buying would impact both these brands with a near 4 percent sales decline in the second half of 2014, Bernstein Research analysis showed. Luxury clothing brands would fare better.
Tensions in Hong Kong have been rumbling all year. China promised the former British colony democratic elections in 2017 but said it would vet the candidates first. This angered many people who took to the streets last month. They were met by riot police who employed tear gas which further hardened their stance.
Luxury retailers have suffered all year and the protests have just exacerbated the situation. Overall retail sales have so far been depressed in 2014 growing just 3 percent compared with the over 20 percent rise seen last year, Bernstein analysis shows. The research firm also notes that there has been a surge in same-day visitors to Hong Kong but a decline in overnight visitors, those who are most likely to make luxury purchases.
Macau: New hotspot?
But weakness in Hong Kong could be offset by the Chinese spending money in other countries abroad including Japan, Korea and Australia, analysts said.
"We think sales lost in Hong Kong could be partially recouped by purchases in other markets, such as Japan and South Korea," Renaissance Capital said in a note.
A number of factors including a weak yen and similar savings on luxury items to Hong Kong have made Japan an attractive place for luxury Chinese shoppers, Bernstein said.
But gambling haven Macau could be the most interesting proposition for luxury goods companies with rising footfall and the presence of "aspirational" customers, Bernstein said.
"We have heard anecdotal evidence from luxury goods companies, and brand managers in Asia that Chinese consumers are now bypassing Hong Kong in order to reach Macau," Bernstein said.
- By CNBC's Arjun Kharpal