Chinese New Year (CNY) Retail Sales Unappetizing.
Retail sales during the “golden week” of CNY were lackluster, according to data from China’s Ministry of Commerce. Reported retail sales (including restaurants) fell 14.7% y-o- y compared to a 16.2% y-o-y decline in 2012. Tier-one cities suffered the sharpest decline as many residents left their cities for vacations or to return to their ancestral homes during the holidays. Retail sales growth in Shanghai and Beijing dropped from 14% in 2010* to 6.5% in 2013 and from 15.5% to 9.2%, respectively. Because CNY is based on a lunar calendar, it may fall in January or February. CNY took place during February in both 2011 and 2012. To adjust for this variable timing, we compared January 2013 retail sales to January 2010.
Macau saw strong casino mass floor traffic, but the VIP hold percentage and volume suffered. The Chinese government is carrying out a far-reaching crackdown on corruption that is squeezing Macau VIP room revenues from mainland gamblers. We estimated 30% growth in mass market gaming revenues but flat to slightly negative growth for the VIP segment during CNY 2013, compared to CNY in 2012.
Luxury Retail Sales Volatile
Both Macau and Hong Kong saw a strong influx of tourists from mainland China during CNY. According to the Hong Kong Immigration Department, mainland tourists increased by 32.7% y-o-y between February 11 and February 13. (CNY holidays are two days shorter in Hong Kong and Macau than in the mainland).
Given that nearly 50% of luxury purchases
made by Chinese take place outside of the mainland, the most effective wa y to monitor high- end retail sales is to track credit card transactions. We are closely monitoring both online and offline transactions, but we suspect ultra-luxury items such as Swiss watches priced at or above ~RMB 100,000 (~USD 16,000) are victims of the tight and tightening anti-corruption measures.
The corruption crackdown induced sluggish luxury retail sales and VIP activity clearly signaled just how much high-end consumption was due to corruption.
House cleaning is indeed encouraging as it will restore Chinese people’s confidence, to a degree. But meanwhile, high-end retailers and casino VIP operators will have to buckle up to weather the storm.