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The high-tech solutions to Hong Kong’s retail slump
It has not been an easy year for the retail industry in Hong Kong. Already feeling the economic impact of the escalations of trade tensions between the US and Greater China, it now has to focus its attention on fighting ongoing protests at home. In October 2019, Hong Kong’s leader Carrie Lam announced that the territory was likely to ‘record negative growth for the year’ as months of protests have knocked the economy into a state of recession. In this case, a recession is defined as ‘two consecutive quarters of negative growth’.
The impact of the recession can already be felt in the retail sector. Hong Kong, with a global reputation as one of the world’s top shopping destinations, has seen sales drop for most goods, including for luxury goods, supermarkets, clothing, footwear, electrical goods and fuel. According to a report on Bloomberg, the Hong Kong Retail Management Association said that “most members” reported a single- to double-digit fall in average sales revenue between June and the first week of July in 2019, following a series of major demonstrations in the city’s main business districts.
Retail sales volumes in Hong Kong dipped 25.3% year-on-year in August 2019, following a 13.1% slump the previous month, according to Trading Economics. In fact, it was the largest decline in retail sales since at least October 2005, thus reflecting severe disruptions in inbound tourism and consumption-related activities caused by months of social unrest.
To put this in perspective, Hong Kong has averaged 5.37% growth between the years 2005 to 2019, with the all-time high recorded in February 2010 (30.6%) and a record low of -18.5% in February 2016.
Tourists, too, are staying away. Total tourist arrivals in August 2019 fell 39.1% over the same period last year, according to statistics from the Hong Kong Tourism Board. The fall in tourist arrivals are reflected in the performance of hotels. Occupancy in September decreased 4.1% to 83.4%, while average daily rate (ADR) fell 9.1% to HK$1,163.21 (US$148.29) and revenue per available room (RevPAR) plummeted 12.9% to HK$970.42, according to STR statistics.
While it may be difficult for Hong Kong retailers to look beyond the current situation, it is still possible to weather the coming storm.
Greater China’s economic growth model is changing, with consumption replacing investment as the core driver of growth, according to a November 2018 report by Deloitte Insights. In fact, the economic contribution and growth rates of China’s Final Consumption Expenditure exceed the consumer goods market in the United States, the Eurozone and Japan. Regional development initiatives, such as the Greater Bay Area (GBA) that includes Hong Kong, will mean it can directly benefit from Greater China’s consumption growth path in the near and immediate future.
The importance of staying competitive and ahead of trends becomes even more critical now for Hong Kong retailers in a recession. In a PwC report, retailers were advised to focus on the customer experience and providing a more personalised experience using innovative retail strategies like “retail-tainment”. Emerging technologies like augmented reality and virtual reality are very appealing to the current generation of digital shoppers.
Building an omnichannel model has also been singled out as a possible “saving grace” for Hong Kong retailers. Melanie Kotschenreuther, a Colliers analyst says “customers increasingly expect a seamless shopping experience with the same services in every sales channel”. She added that omnichannel strategies should integrate mobile, online and offline channels and allow the shopping process and promotions to transfer from one to the other seamlessly.
Meanwhile, e-payments in Hong Kong continue to thrive. The city was one of the first in the world to implement a cashless payment system with its Octopus card back in 1997 and it hasn’t looked back. According to research firm Statista, transaction value in the digital payments segment in Hong Kong is at US$14.5 billion this year and it is expected to grow annually at 11.3% to reach US$22.4 billion by 2023.
The Hong Kong retail market will do well to ride out this wave of challenges with some degree of optimism, using this slowdown to review and revamp strategies and existing processes, and stand ready for the pickup when it comes.
With more than 40 years of experience and 140 offices globally, PageGroup has one of the most comprehensive networks of employers and candidates in the retail industry. This article is part of our Market Movers series, which attempts to highlight various industry segments across specific markets.
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