Restrictions on mainland Chinese visitors to Hong Kong have caught Wall Street's attention, with worries growing that the rules could hurt luxury merchants.
Announced over the weekend, the new policy limits visitors from the neighboring city of Shenzhen to one visit per week to Hong Kong, rather than multiple trips. Goldman Sachs estimated an overall 2 percent decline in Hong Kong retail sales as a result of the restrictions, with cosmetic firms hit the most.
"Day-trippers are more focused on buying certain products such as cosmetics and food/alcohol/tobacco, which is 14 percent and 17 percent of total shopping spend in 2013, respectively," analyst Ricky Tsang said in a Sunday note.
It's an important development "for Tiffany and the overall luxury space as mainland Chinese tourists drive overall luxury consumer spend in Hong Kong, Macau and abroad," Macquarie Research analyst Laurent Vasilescu said in a Tuesday report.
Shares of Tiffany took a hit earlier in the week and are now down 18 percent year-to-date. They were near flat on Wednesday.
The retailer noted in its third-quarter earnings report that its nine Hong Kong stores make up a "meaningful part of its greater China sales," which in turn account for more than half of the firm's Asia-Pacific revenue.
"The Occupy Central disruptions impacted third-quarter sales, and we believe we may hear more about the recent clampdown on Chinese tourism going forward," Vasilescu said. "Additionally ... luxury brands like Chanel and TAG Heuer are starting to cut prices in mainland China to remove the growing price differentials between China & Europe (caused by a weakening euro)."
Goldman's Tsang noted that Chinese tourists who stay overnight are more likely than day travelers to spend on expensive jewelry and leather goods. Ninety percent of the 15 million multi-entry visitors in 2014 were day-trippers, the report said.
Lower prices and perceptions of higher quality on items ranging from baby formula to Apple iPhones have prompted mainlanders to cross the border frequently for Western goods. Still, the new policy may do little to bar smuggling by Hong Kong residents. Authorities caught one person in January who attempted to enter the mainland with 94 iPhones strapped to his body.
The Hong Kong government proposed the travel restrictions after extended local complaints about smuggling and congestion in residential areas.
"Taking into account Hong Kong's receiving capacity of Mainland visitors, the (Hong Kong government) has already proposed to the Central Government concrete measures to adjust the 'multiple-entry' Individual Visit Endorsements for permanent residents of Shenzhen," the government said in a statement on its website on Saturday.
Mainland Chinese tourists accounted for about 47 million visitors to Hong Kong last year, and that number continues to grow.
In February, during the Chinese New Year holiday when many Chinese travel, the number of visitors from mainland China increased 31.6 percent from the same month last year to 4.6 million, according to the Hong Kong Tourism Bureau.
Adding to the pressure on retail, Vasilescu said, is a Monday report from the Macau Business Daily on a government proposal to cap mainland visitors to the island at 21 million annually.
Chinese customers represent about a third of the 223 billion euro ($236 billion) global personal luxury goods market, according to Bain & Co., the Macquarie study said.
CORRECTION: Shenzhen is a city near Hong Kong. That fact was misstated in an earlier version of this article.