An executive of a major mall owner in Hong Kong recently said that he was not worried that the downturn in overall retail sales would push down rentals on his company's properties because the tenants were mainly retailers catering to domestic consumers.

That was not PR talk. The company, in a way, has demonstrated that sustained growth in the retail sector, an important component of Hong Kong's services industry which accounts for more than 80 percent of the economy, is driven not by tourist spending but by domestic consumption.

In the past, catering to the flood of mainland visitors to shop and dine in Hong Kong dominated the retail business. As a result, many shops and eateries that were frequented by local consumers were pushed out by escalating rentals in the major commercial districts, including Causeway Bay on Hong Kong Island and Mong Kok in Kowloon.

But the tourism boom that brought about a retail bonanza ended abruptly last year for a combination of reasons. Although the number of tourist arrivals has continued to increase, albeit at a lower rate, in past months tourist spending fell sharply.

Despite the fall in rentals, more and more fashion boutiques, jewelry shops and drugstores that cater almost exclusively to mainland tourists had to either downsize or quit. There is no love lost for most Hong Kong people.

To survive, retailers in prime commercial districts have to accept that the boom time for them is really over. The appreciation of the Hong Kong dollar in tandem with the greenback against the renminbi will continue to discourage mainland tourists from coming to shop in Hong Kong.

It is time for retailers to take advantage of the lower rentals and accept narrower profit margins in luring domestic consumers. That is going to be the rule of the game.

(HK Edition 11/13/2015 page10)