Hong Kong’s sharp drop in visitor arrivals from mainland China has hurt retailers’ sales from luxury watches and gems, to anti-wrinkle cream and pastries as the slowdown deepens in the world’s second-biggest economy.

Net income at Sa Sa International Holdings Ltd. fell 54 percent to HK$383.5 million in the year ended March 2016 on poorer sales to Chinese customers, and the cosmetics stores operator said Hong Kong’s retail market “will continue to face a number of challenges” amid China’s weak economy and stricter entry rules for mainland visitors.

Sa Sa’s poor outlook followed that of restaurants operator Tsui Wah Holdings Ltd., which said Wednesday profit for the year ended March 2016 will drop by more than 50 percent, also attributing it to a drop in Chinese customers. Mainland tourists, who account for about 70 percent of visitors to Hong Kong, fell 16 percent in 2015 and slumped a further 13 percent in the first four months of this year, according to the city’s tourism board.

Shutting Stores

Sa Sa, which gets about 80 percent of sales from Hong Kong and Macau, rose 2.6 percent to HK$2.78 by the close of trading after it declared a special dividend. Tsui Wah, which specializes in Hong Kong snacks such as condensed milk buns, fell 2.1 percent, extending Wednesday’s loss of 8.5 percent. The benchmark Hang Seng Index rose 0.4 percent.

Sa Sa will adjust its stores network in Hong Kong by shutting down some in areas frequented by tourists, and opening more in other districts, as rental costs in popular areas such as Causeway Bay can be as much as six times higher. 

Chow Tai Fook Jewellery Group Ltd., the world’s largest publicly traded jewelry chain, earlier this month predicted market conditions in the region to remain challenging, and said it would chase Chinese tourist dollars overseas as well as negotiate for lower rents after full-year profit fell 46 percent. Its smaller Hong Kong-based rival Luk Fook Holdings (International) Ltd. reported Thursday net income fell 40 percent to HK$958.7 million, citing uncertainties in the global economy and China’s slowdown.

Efforts by retailers to strike deals with landlords in Hong Kong to cut rents would help limit this year’s profit declines, according to Bloomberg Intelligence.

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