2006 Christmas Sales in Major Overseas Markets

and Retail Outlook for 2007

Research Department28 December 2006

2006 Christmas Sales

in Major Overseas Markets

1

US – Retailers to Post4-5% Growth

Fairly solid expansion helped by last-minute flurry

Basic Positive Factors

Other Positive Factors

• Longer Thanksgiving-to-Christmas• A full weekend of last-minute purchases• An influx of tourists

• Low joblessness• Steady income growth• Respite of oil prices• Windfalls from stock market

2

US – Battlefield between Shoppers and

RetailersEven more aggressive discounts and promotions

Negative Factors

Retailer Strategies • Early implementation of promotions

• Deeper discounts

• Issuance of gift certificates

• Prevailing economic slowdown

• Slackening housing market

• Still-high fuel costs

• Selected and procrastinated purchases

3

US – Polarisation of Market

Better performance of value-for-money merchandise

E-tailers • Low prices• Free delivery

• Still-strong showing due to continued spending spree of high-income consumers

High-end stores

Discounters and mass

merchandisers

• Caution remained the buzzword• Sustained popularity of mass

merchandisers and discounters

4

US – Demand Pattern Similar to Last Year’s

Consumer electronics remained hot sellersConsumer electronics

• Video game consoles – Wii & PS3• TMX Elmo• Certain dolls and licensed toys – Barbie, Bratz & Dora the Explorer• Educational toys, robots, trucks & cars, children’s MP3 players

• Flat-panel TVs• Handheld digital audio players• DVD players, digital cameras, mobile

phones, notebooks

Luxuries

Clothing

Toys

• High-end apparel• Fine jewellery• Higher-priced watches

• Sales affected by warm winter

5

Europe – Generally Firmer Festive

SpendingBetter sales recorded for the major markets

amid moderate economic expansion

MajorDevelopments

MajorConcerns

• Heavy emphasis on low prices and store promotions

• Surge in online sales

• Growing popularity of gift certificates

• Better sales for luxuries in some markets

• Still-high unemployment

• Still-high oil prices

• Higher interest rates

• Shoppers to buy abroad

6

Germany – Sales to Increase by 2%

Spending in advance of a 3-point VAT hike

Consumerelectronics

Clothing • Sales dragged down by mild temperatures

• Flat-screen TVs, DVD players, digital music players, digital cameras, GPS navigation systems

Toys • Video games, educational toys, board games, model trains, plush toys, doll sets

7

Other gifts • Jewellery and watches

France and Italy – Higher Sales Than Last

Year Especially in FranceBetter mood to spend during this holiday season

ItalyFrance

• Consumer electronics• Video games• Clothing

• Consumer electronics• Video games• Jewellery and timepie

ces

8

UK – Sales to Increase 3-4%

Low unemployment and firming house prices to support spending

Toys

Electronic gadgets

Clothing

Other favoured gifts

• Video games, educational toys, classic toys

• Flat-panel TVs• Digital music players• Mobile phones• Home cinema products• Lap top computers

• Sales boosted by deep discounts

• Jewellery and watches9

Japan – Consumers More Willing to Spend

Confidence spurred by rising winter bonuses and better job prospects

• Demand hampered by warm weather

• Flat-screen TVs and digital music players much sought after

• Video games a popular buy

Clothing

Consumer electronics

Toys

Jewellery and watches • Sales facilitated by appetite for luxuries

10

Chinese Mainland – Encouraging Year-end

SalesRetail sales remained strong despite tightening

measures

Contributing factors Favoured gift items• Economic fundamentals

remained sound• Appreciation of RMB• Growing popularity of

Christmas• Increasing Christmas

sales promotions

• Most consumer products including consumer electronics, toys, garments, timepieces and jewellery

11

utlook for 2007

12

US – Consumer Spending to Cool

SlightlyEconomy to ease back into a lower gear

• Consumers to remain prudent

• Sustained consolidation of housing market

• Sustained popularity of mass merchandisers and discounters

• But higher-income consumers to continue spending spree

• Hong Kong exporters to adjust their product strategies

13

EU – Consumption to Remain Stable

More moderate pace of economic expansion

• Fiscal deficit reduction

• Consumers to remain conservative

• Rising interest rates

• Value-for-money preferred but quality still sought after

• Strong euro facilitating imports

14

EU – Varied Performances

Varied prospects for different markets

Germany

Italy

UK

• Slowing exports• VAT rise for 2007

• Slowing exports• Deficit reduction measures

• Relatively low joblessness• Favourable housing market

15

France • Sustained job creation and income growth

Japan – Consumer Spending to Expand

SteadilyContinued but tepid economic revival

• Moderating exports

• An end to zero-interest-rate policy and expected tightening of fiscal policy

• Sustained improvement in labour market and wages

• Adherence to value-for-money but growing demand for higher-end products

• Stable yen facilitating imports

16

Chinese Mainland – Healthy Spending to

Take HoldIncreased consumer spending a priority for 2007

• Government policies such as introduction of minimum wages, salary reform for civil servants, expansion of rural consumption and increases in welfare expenditure

• CEPA III to provide sales opportunities

• Shift in consumption on sophisticated consumer goods

• Increasing mainland customers to shop in Hong Kong

• Rapid urbanisation and growth of middle class

17

Hong Kong’s Exports Expected to Grow 6%

in 2007Projected 2007

Growth (%)

Value Real

Total Exports +6.0 +8.0

Domestic Exports -10.0 -7.0

Re-exports +6.5 +8.0

Imports +8.0 +7.5

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Have a Prosperous 2007!

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