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Buoyant Christmas retail sales in Hong Kong's major markets

The 1999 Christmas Sales in Major Overseas Markets and Retail Outlook for 2000is excerpted from Trade Watch, a publication of the TDC's Research Department. For sales, call 25844549. Price: HK$50.

The 1999 Christmas sales situation in Hong Kong's major overseas markets warrants special attention given its intimate bearing on the expected performance of retail sales for 2000. The acceleration in Asian recovery plus the continued upturn in the European market in the second half of 1999 has reinforced the positive trade sentiments underscored by the booming North America market, which undoubtedly is to the benefit of Hong Kong manufacturers and exporters.

Reports from TDC branch offices revealed that generally Christmas sales in all of Hong Kong's major exports performed well. In the US, shoppers heavily spent, courtesy of the strong economy and buoyant consumer confidence. The continued economic upturn in the European Union (EU) allayed retailers' concern about a repetition of 1998's poor performance. Japan's incipient economic recovery touched off some cautious spending before the New Year, though concerns about corporate restructuring and job security were still lingering. In the Chinese mainland, year-end sales were quite satisfactory amid active retailer promotion, Millennium festivities and among other things, the positive sentiment engendered by China's imminent accession to the World Trade Organisation (WTO) in 2000.

In terms of products, the stronger season shopping this year reversed the mixed performance evident in 1998. Sales of electronics and toys were especially robust in major markets. Apparel sales were satisfactory thanks to a cold December. Jewellery and watches fared well as Christmas gifts in most major markets. Meanwhile, sales of houseware and electrical appliances were quite promising in the US, France and the UK, while sales of footwear also benefitted from the improved trend. Unlike the previous year, retailers in major markets were less reliant on deep discounts to inspire spending, though promotional efforts, by both traditional and Internet retailers, were aggressive in enticing shoppers, who generally were less price cautious than the previous year with stronger appetite for luxury items.

Generally speaking, retail sales outlook for 2000 on the whole will be promising in light of the encouraging Christmas sales in major markets. In the US, healthy expansion of retail sales should continue apace given the strong sense of financial well being. European consumers, particularly those in France, the UK and Germany, will likely spend more next year, while a modest rise in spending by Italian consumers is also expected. As for Japan, retail sales should pick up further as the economy recovery is expected to quicken in view of the heavy fiscal injection slated for 2000. In the Chinese mainland, retail sales should further improve in view of the persistent economic vigour, pickup in export activities, pro-spending policies including interest rate cuts and interest rate tax, and optimism due to the accession of China to the WTO.

US

Many retailers posted strong year-on-year sales growth of around 7%, while e-tailers also reported a bumper harvest with many doubling to quadrupling their sales from 1998. Factors underlining the rosy sales picture included the robust economy which looks set to mark a record expansion, a housing boom, the lowest unemployment rate in three decades, solid income growth, buoyant equities prices, and a lack of political distraction. Goods at virtually all price points performed well and luxury items including diamond jewellery were back in fashion.

Both traditional retailers and web merchants employed aggressive media advertisement to inspire spending. Not surprisingly, many cyber malls had their Christmas season buying start as early as in October and wound down in the week before Christmas, as shoppers scaled down online shopping for fear of late delivery. In retrospect, e-shopping exploded, accounting roughly 5% of the overall holiday sales and surpassing the total e-shopping for 1998. In recognition of many first time e-shoppers this Christmas, rapid expansion of e-tailing next year is envisioned.

Discount store chains and specialty stores selling toys, electronics, apparel and household products saw brisk demand. Generally, middle market merchandisers and department stores also benefitted from the prevailing trend, though many of them resorted to sharp discounts to spur post-Christmas sales. Toys wise, Pokemon and the related merchandise were very hot; interests in Barbie and Amazing Amy remained good, while interactive educational toys were big sellers. Apparel saw decent demand across the price spectrum, with shoppers interested in designer and colourful clothing, as well as luxury wears in cashmere, leather and suede. Generally, cold weather garments fetched better sales as the weather turned cold after the unusually warm November. Household goods, furniture and home furnishings were propped up by the strength of the housing market, also benefitting large electrical appliances. Electronics such as DVD players, large screen TVs, playstations and digital cameras sold very well. Sales of computers and accessories were unaffected by concerns about millennium bugs. Many products, however, benefitted from the Y2K including champagne, watches and jewellery. Diamond jewellery was hot, partly helped by the expected surge in millennium marriages. Watches were favoured Christmas gifts. Footwear sales were fine, though lagging behind the trends of other goods.

Europe

The accelerated economic activities from the middle of 1999 in many core EU countries, manifested in falling unemployment, reinvigorated consumer confidence and stronger exports, were conducive to the stronger than expected retail sales during the festive seasons. This was also helped by the stabilisation in external markets coupled with the dissipation of negative ramifications due to the Asian financial crisis.

In Germany, majority of department stores, shops and chains reported higher turnover than in 1998. Sales of consumer electronics were hot, including computers, DVD players, digital cameras and home theatres. Apparel sales were stronger than in 1998 with winter garments selling well amid the cold weather. Festive garments were also in demand, and so were Millennium goods like wines and champagne, where runs were reported. Traditional gifts like high-priced jewellery in gold and white-gold sold well and so did watches, especially those with special features like chronometers. Toys wise, Teletubbies saw good demand but video games were most popular.

France grew most quickly among the core EU economies, as it stood better insulated from the Asian crisis contagion. Strengthened consumer confidence and end-of-millennium festivities elicited exuberance in holiday spending. Overall toy sales were still promising, though traditional toys were a touch disappointing whereas interactive toys and electronic games sold well. The French housing boom induced the sharpest growth in houseware sales, which also benefitted sales of large electrical appliances. Sales of consumer electronics were robust, with mobile phones, computers and DVD players selling extremely well. By contrast, garments, fashions and footwear were relatively the less well-performed markets. As for Italy, Christmas sales stagnated at 1998's level, as consumers cautiously spent while the economy struggled to recoup. Sales of computers and accessories were flat, failing to exhibit the trend evident in the northern EU economies.

In the UK, this Christmas was marked with a solid recovery from 1998's exceedingly poor performance thanks to the robust economy and surge in consumer confidence. The propensity to spend was helped in part by the Millennium factor, with London holding the largest open millennial celebrations in Europe. This favoured sales of toys, giftware and party dresses. Evidently, traditional toys were losing out to electronic toys and games 苛 even Pokemon failed to take off, while Teletubbies and Beanie Babies lost their appeal. Watches and jewellery saw an unexpected surge in demand, also partly as a result of the Y2K. Consumer electronics like mobile phones, particularly those with Internet links, computers and related accessories, playstations, digital and widescreen TVs, all sold well. E-tailing made a debut this Christmas, though sales as a portion of overall holiday sales were insignificant. Healthy sales in houseware and household products were recorded thanks to the housing boom.

Asia

In Japan, year-end sales only improved slightly from 1998 despite store-packed crowds given the continued concern about job security and another year of deep cut in winter bonus payments. Sluggishness in income growth aside, spending was higher as consumers, tired of belt tightening, loosened their purse strings. Specialty stores selling electronics emerged as the clear winner in retailers?fierce battle for winter bonus spending. There was a marked increase in sales of MD and DVD players, computers and related accessories. Most shoppers were selective and wanted to stretch their shopping budgets. The cheaper-is-better trend was reflected in the brisk demand for inexpensive desktop computers and apparel.

In the mainland, year-end sales were satisfactory, thanks chiefly to the encouraging consumption atmosphere due to the reinvigoration of exports, and a spate of pro-spending government measures. To hasten domestic consumption, the government cut interest rates seven times in 1999, levied a tax on interest income, and increased wage, bonus and redundancy payments to government employees. Coincidentally, consumer spending, spurred by activities relating to China's 50th anniversary in October, was sustained through the 4th quarter of 1999 by the positive sentiment arising from the China-US accord on WTO accession concluded in November; reunification of Macau with the Chinese mainland in December; and celebrations of the Millennium.

Outlook for 2000

Expectations are for continued expansion of retail sales in the US in 2000 in the wake of strong holiday sales, which were considered to be the best in a decade. As the housing boom is expected to peter out, however, big-ticket items, which are more sensitive to interest rate gyrations, should fare comparably less well than other consumables. Meanwhile, the sturdy trend in jewellery and Internet-related electronics is likely to continue. Aside from the impact of workplace casualisation on apparel demand, luxurious, high-margin apparel categories should continue to perform well in light of the strong Christmas sales of related items.
For Europe as a whole, retail sales are likely to post continued, modest growth in 2000. With emerging economies generally on the mend including a speedier Asian recovery, and the EU economies staging a continued economic recovery, consumer confidence in Europe is likely to remain strong. In retrospect, the macroeconomic backdrop has been encouraging ?the lower pan-area unemployment rate and subdued inflation imply real income growth. This should bode well for healthy consumer spending in 2000, regardless of the likelihood of the European Central Bank opting for a slightly tighter monetary policy.

Consumer sentiment in Germany is sanguine in view of the renewed economic vigour including stronger export activities. German retailers, department stores and mall order houses are positive for the retail sales outlook in 2000. France, growing most quickly among core EU economies and seen as reaping the biggest benefits of the single European currency, will continue to benefit from strong exports. Evidently, with French consumer confidence hovering at high levels, the outlook of household consumption in 2000 is especially positive. Similarly, expectations are for the UK retail sales to further improve. In Italy, retail sales outlook will likely be flat to marginally positive, with spending more on household appliances than other products. Indeed, across the core EU economies, consumer electronics including DVD players, computers and products linked to the Internet should generally fare better than other product categories like apparel and footwear. Jewellery including items with excellent craftsmanship and designs focussing on European taste, as well as watches and clocks, should continue to perform well following the surge in Christmas sales.

In Japan, while the worst time for economic difficulties is largely over given the government's persistent attempts to reflate the economy with sizeable fiscal injection and the zero-interest rate policy, consumer confidence remains delicate amid the continued corporate restructuring. Consumer confidence, which dictates the extent to which consumer spending will be sustained in 2000, will hinge on the effectiveness of and rapidity with which the government's reflationary programs trickle down. Nevertheless, the polarised Japanese consumer market suggests that low-price items, alongside the hotly demanded educational and entertainment equipment like computers and game-ware, will be continually favoured among the bargain-hunting Japanese consumers. This will bode well for Hong Kong traders given their ability to produce and source quality products that are price-competitive.

In the Chinese mainland, retail sales should continue to pick up in 2000 given the underlying strength of the economy. Despite ongoing enterprise reform, disposable income is rising, which will be conducive to consumer spending along with the government measures to spur domestic consumption, and the revitalisation of export processing activities. Further, massive fiscal injection slated for 2000 will contribute to stabilising unemployment, also ensuring that the Chinese economy remains buoyant to the effect of further boosting consumer confidence. Another positive factor is that following China's accession to the WTO expected by the middle of 2000, the associated reduction in tariffs will lead to lower import prices and thus be conducive to consumer spending. Hong Kong manufacturers with production facilities in the Chinese mainland should take note of these developments, bracing themselves with greater competition and fresh opportunities in anticipation of full trading and distribution rights.