INDUSTRY BRIEFING: RETAIL
Should Hong Kong’s brick-and-mortar retailers ride the e-commerce wave?
Retailers will need to cater more to the 62.1% of Hong Kongers who prefer to shop in-store, expert says.
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nline sales accounted for 6.3% of total retail sales in 2020, according to PwC, which saw a “very modest” increase to 7.4% as of September 2021. Analysing this, a PwC executive said that Hong Kong retailers may have fallen short. “If you look at the actual amount of online sales, we’re talking about only 7% of retail sales overall. Hong Kong retailers are still not doing that much of moving their business models into online-to-offline (O2O),” Michael Cheng, Asia Pacific, Mainland China and Hong Kong Consumer Markets Leader for PwC, told Hong Kong Business. Although online sales in the city have the potential to reach over 10% in the next two to three years, this is still behind China’s retail industry that now has a target of over 25%. Cheng added that businesses will still rely more on brick-and-mortar stores to generate revenues more instantly even as retailers change their business models to improve their online operations. “As the city returns to more of a business-as-usual, Hong Kong retailers will still continue to see their physical stores as the main generator of business, at the expense of online expansion,” he said. Data from Centaline Commercial, as cited by PwC, showed that volume transactions in the industrial and commercial store market have risen by 56% and 83% year on year, respectively. “To some extent, you cannot blame them because this
62.1% of consumers in Hong Kong either strongly agree or agree that they would shop in-store to create experiences
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HONG KONG BUSINESS | Q1 2022
Hong Kong retailers are still not doing that much of moving their business models into online-to-offline
is how they used to make money in the past and they believe this is the most efficient and effective way in a very short time period,” Cheng said, adding that in the long run, this will call for retailers to make a “very drastic and very determined way to change the habit of making both online and offline practical and feasible to the customers.” Pop-up retail scene The declining cases of infections have encouraged retailers to set up shop in physical spaces after a challenging 2020 and 2021 when the vacancy rate of street shops recorded a rate of over 10%. “They are playing around with more pop-up stores. And they’re also looking at how they can work with the shopping malls and the retail property players in creating those new experiences, so that, I think, is definitely something we will continue to see in 2022,” Bailey said. Herbert Yum Research Manager at Euromonitor International added that as Hong Kong continues to return to normal, retailers will likely allocate more budget on both experience and pop-up stores. In its Voice of Consumer Survey: Lifestyle 2021 report, Euromonitor found that 62.1% of consumers in Hong Kong either strongly agree or agree that they would shop in-store to create experiences. Some 46.4% have also agreed that it is important to spend money on experiences. “It is expected such consumer sentiment will continue in 2022, hence retailers would need to rethink how they could enhance both online and offline shopping experience to better capture the consumer spendings,” Yum noted. PwC’s Cheng, meanwhile, said that pop-up stores in Hong Kong have emerged as retailers have responded not just to the pandemic, but also to the impact of social unrest in the city back in 2019. “We definitely see the risk in having very large stores concentrated in major shopping centres. That’s why you will see a lot of brands moving out of the main shopping hubs,” Cheng said, adding that retailers will likely move towards smaller stores, like pop-ups, where rents are lower and leases are relatively short. Consider omnichannel KPMG, likewise, projects the Hong Kong retail industry will see an uptick in 2022 as travel expectations remain despite the emergence of new COVID-19 variants. But for KPMG Head of Consumer & Retail for Asia Pacific Anson Bailey, said traditional retailers that are looking at setting up their online platforms will particularly become 2022’s “big winner.” His retail clients in Asia, for instance, have seen the share of online sales double or even triple from what used to be only around 5% to-10%. And in this light, he expects
