Hong Kong Luxury Sales Explode on Mainland Tourism

The foreign brands are also sold in mainland China, but shoppers there fear buying look-alike knockoffs instead of the real thing as counterfeiting is rampant. Currency exchange rates tend to favor purchases in Hong Kong, local merchants say, and the city doesn't tax the sales of stuff that mainlanders usually buy.

Since 2003, as Hong Kong tried to grow business that had taken a hit from the SARS respiratory disease outbreak that year, the city has made it easier for once-restricted mainland tourists to drop down for non-group travel.

Nielsen breaks down the actual purchases this way: cosmetics at 33%, electronics including cameras at 22%, clothing at 22% and jewelry (including watches) at 17%. (Canton Road also attracts jewelers led by Hong Kong's own ubiquitous Chow Tai Fook (1929.HK) chain. Unlisted Chanel woos women with its globally branded cosmetics.)

Again put simply, higher mainland Chinese incomes will generate more Hong Kong shopping, which will add to the sales revenue of international brands, which can confidently answer to investors concerned about performance.

The walk down Canton Road reveals the likely gainers. In addition to the global fashion stars, consider also the popular Emperor Watch & Jewelry (EPRJF) and Marks & Spencer (MKS.L), a British clothier without the cachet of Dior or Gucci but with outlets around Hong Kong and a steady following of mainland shoppers.

Just 18% of the average mainland shopper's bill goes to lodging, Nielsen estimates. So keen are some to save money for shopping that they make daytrips or stay for cheap in rooms in private apartments, rented by the owners. Sorry Hilton (HLT) and Mandarin Oriental (MOIL.SI) hotels.

Hong Kong people grumble about being surpassed by their once poorer ethnic Chinese kin in the mainland, while merchants selling normal stuff to normal locals have been turfed out of the top shopping areas by rising rents. But the business community looks forward to a further opening of Hong Kong's floodgate to the north, with one local chamber of commerce pushing the city government for an aggressive branding campaign aimed at mainland China.

That group, the Hong Kong General Chamber of Small and Medium Business, says most of its 1,500 members are benefiting from Chinese shoppers. It expects retailing to the mainland Chinese to secure a top spot in Hong Kong's economy.

Hong Kong already logged 28.1 million mainland arrivals last year, up fourfold over 2002 before solo-travel visas got easier.

"In Hong Kong we don't have any industry," chamber President David Ting told me this week. "We have the financial sector, but that depends on the Western world also and their economy is not so good."

At the time of publication, the author had no positions in any of the stocks mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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