Buyers seek immersive retail experiences

Retailers are investing in a mix of physical stores and e-commerce channels

The convergence of online and offline selling is set to further accelerate in 2021

With the COVID-19 pandemic impacting most businesses, many retailers struggle to stay afloat. The Census and Statistics Department data show the provisional estimate of total retail sales in Hong Kong has decreased by 28.3% in volume for the first 10 months of 2020 compared with the same period in 2019.

Research from Euromonitor International also revealed that the COVID-19 pandemic will cause a 3.5% decline, which will amount to $3.88t (US$500b), in global retail sales for 2020.

However, Hong Kong’s retail market has already been struggling even before this year as growing social unrest brought by extradition bill protests resulted in disruptions in retail businesses.

These events have caused many retailers to think quickly on their feet and adapt to the rapidly changing retail market by maximizing the online channels.

Mainstreaming online retail trends

This year, retailers have seen the

Lawrence Wan

Emily Leung

emergence of online trends such as livestream shopping and online shopping festivals. CBRE Hong Kong senior director Lawrence Wan said that as this occurs, retailers will also face a key challenge amidst fundamental changes in consumer behaviour. “Retailers are adapting to the change by diversifying retail strategies and investing in a good mix of brick and mortar stores and e-commerce channels,” he noted.

Wan also mentioned that with the festive season approaching, customer sentiments have been improving in Q4 compared to the previous three quarters. With this improvement, together with major COVID-19 vaccine developments and gradual lifting of travel restrictions, he affirms 2021 will be more positive for Hong Kong.

Meanwhile, IGD senior Asia retail analyst Charles Chan noted that whilst 2020 has seen exponential growth in online grocery and surge in sales for supermarkets, this will change in 2021.

“Growth for these channels will lessen slightly in 2021, with consumers moving past the initial shock and lifestyle changes that affect how and where they work and shop,” Chan said.

Hong Kong’s grocery retail market has seen strong growth this year, despite more consumers staying at home for meals. IGD forecasts the grocery retail market to grow at an annual growth rate of 2% to 2022, with supermarkets accounting for more than 50% of the market.

Chan mentioned that delivery platforms such as foodpanda and Deliveroo have formed new partnerships with retailers and have expanded their delivery coverage to provide convenient access to grocery for more shoppers.

Integrating e-commerce

The challenges brought by the pandemic has pushed many businesses to digitise operations and this has prompted more retailers to shift transactions online. E-commerce has also become more prominent and has challenged retailers to continue engaging and attracting customers.

For Euromonitor senior analyst Emily Leung, the Hong Kong e-commerce market is expected to increase by 27% this year. This growth is expected to continue until 2025 with a compounded annual growth rate of 10%.

“What COVID-19 has done to Hong Kong is really force people to actually go online to shop because in Hong Kong, the e-commerce market was relatively low before COVID-19. Now because of COVID-19, we’re seeing a lot of people change their shopping behaviors, transforming from shopping offline to online,” according to Leung.

However, the emergence of e-commerce and online transactions also raises questions on the necessity of physical stores.

According to a Euromonitor research, 46% of connected consumers said their motivation for shopping in physical stores is to see and try the product before buying, with apparel accessories and beauty personal care products being the two most popular categories for inperson purchases.

Leung mentioned that retail stores are still going to be important for a lot of customers to actually connect and know about the brands. Retailers have to strategize so as to help consumers move digitally with the brands.

“If you are talking about what retailers are doing to ensure customers adapt to technology, to lead them on to online from offline, a lot of education is done in store. This is why I think there’s still a need for physical stores,” she said.

The changing consumer behaviors

The rapidly changing retail environment has significantly impacted consumer sentiment. Whilst the COVID-19 accelerated digital growth for retailers, they now have to face bigger expectations from consumers and adapt faster to meet those.

KPMG head of consumer and retail for ASPAC Anson Bailey emphasises the importance of understanding consumer behaviours as a key for retailers to be able to respond quickly to the changing market. “Consumer confidence is certainly down, and those brands need to focus on reassurance. They need to implement new initiatives that restore their consumer confidence,” he said.

“Consumer confidence is certainly down, and those brands need to focus on reassurance. They need to implement new initiatives that restore their consumer confidence,” he said.

Data from KPMG saw net trust in grocery and non-grocery retail drop to -2% and -5%, respectively from May to August, with more customers saying that they have less trust in the sector than before COVID-19. The research shows retailers need to demonstrate that they are still taking personal safety seriously in order to rebuild consumer trust.

Amidst the emergence of online retail, consumers are seeking a more immersive shopping experience as they still long to shop offline. “In this new immersive shopping experience, they want to see new technologies and new innovations,” Bailey said.

He added that consumers are going to take more active interest in the origin of products and the manner of production.

“We’re going to see a lot more focus on more transparent supply chains. The consumers are now demanding, they are watching carefully what the brands are doing. What are they doing to the planet? How are they supporting the communities that you live in and work in?”

The ‘new normal’ in retail sector

The Hong Kong retail sector is expected to slowly rebound in 2021. Wan noted that depending on border controls, anticipated recovery could be a rapid one, if not a V-shaped curve, once tourists return to Hong Kong. Moreover, he added that the upcoming year is a good time for retailers to get better locations and leasing terms for a brick and mortar presence, whilst investing in e-commerce and marketing efforts.

“Apart from continuing to drive local promotion campaigns, retailers are advised to consider tapping opportunities of lower rent and more choices in prime locations,” according to Wan.

Similarly, Chan said retailers should review their store estate to identify underperforming stores and adjust operations.

“Stores in commercial and tourist areas will need to provide additional reasons to visit,” he said. “Whilst stores located in residential areas should also be reconfigured to have a greater focus on grocery, with digital touchpoints added to meet the new expectations of shoppers.”

Meanwhile, Euromonitor’s Leung cited key factors that should be considered for retailers to recover in the new year. These include a strong offline-to-online strategy, being sustainable, and catering more to the domestic market.

“It’s going to be a long recovery process, and I think during this time is also a good opportunity for retailers to innovate,” she said.

The digital shift also introduces issues in loyalty for brands and retailers due to greater transparency in online pricing.

“The greater transparency of online pricing means that consumers have more opportunity to explore competing products. This is likely to lead to more switching, testing new brands, variants and pack sizes,” Chan said.

With the retail sector set for recovery next year, retailers ultimately need to demonstrate their purpose in order to respond to everchanging consumer requirements Their behaviours, highlighted by the demand for a more immersive shopping experience, call for companies to be more flexible and agile in doing business.

“If those retailers do nothing, they will be in big trouble because the world is moving on,“ Bailey said.

Anson Bailey

Charles Chan

Changes in consumer shopping habits during the pandemic

Source: Consumers and the new reality, KPMG International