Author: Mei Ling Tan

Hong Kong retail sales will shrink by 5 per cent this year according to projections by PWC.

Citing uncertainty clouding consumer markets across Mainland China and Hong Kong, PWC also says macroeconomic uncertainty has prompted Chinese retailers to refocus on customer experience.

“Hong Kong retail sales is estimated to fall by 5 per cent to approximately HK$460 billion this year, as the ongoing Sino-US trade dispute, equity market turbulence and volatility of Renminbi continue to cast a long shadow on consumers sentiment and actual spending”, says Michael Cheng, PWC’s Asia Pacific and Hong Kong/China consumer markets leader.

PWC had earlier forecast a 3-per-cent decline in Hong Kong retail sales and says its downgrade reflects a weaker outlook for the second half of the year, due to a combination of factors including external headwinds, economic instability, as well as the projected decrease in tourist arrivals and spending.

The projections are included in the consultancy’s report Back to the Core: Reinvigorate Experience-driven Retail at a Time of Uncertainty.

Government data shows Hong Kong retail sales for the first four months of this year fell by 2 per cent, with electrical and luxury goods among the sectors suffering the biggest decline, against the backdrop of a weak Renminbi and waning consumer confidence. On the back of the completion of major infrastructures such as the Hong Kong–Zhuhai–Macau Bridge and the Guangzhou–Shenzhen–Hong Kong Express Rail Link, mainland tourist arrivals grew steadily in the last quarter of last year, reaching a record high in January, aided by the Chinese New Year holiday-shopping season. However, mainland tourist arrivals started to drop from the peak three months in a row since February.

“Local retail sales and mainland tourist arrivals are expected to continue on a downward trend through the rest of this year, indicating a slowing consumer market in Hong Kong,” says Cheng.

“Electrical and luxury goods are set to shrink further, while consumer goods like health-and-beauty products will hold well with a modest growth. The recent political and social unrest, temporary closure of the Peak Tram due to renovations, coupled with a lack of new tourist attractions might lower mainland tourists’ appetite to visit Hong Kong in the short term. Meanwhile, a weakening economy as well as uncertainty surrounding the trade dispute present risks to the outlook in the medium to longer run,” he says.

Adapt or suffer

Cheng says this year’s tough Hong Kong retail climate underlines the importance for retailers to adapt to changing consumer preferences and spending patterns in order to maintain competitiveness and profitability.

“As shoppers nowadays have put a bigger focus on consumer experience, more and more retailers are moving to create a more engaging and experience-driven shopping journey with innovative and unconventional retail strategies such as ‘retailtainment’ and ‘coopetition’. Moreover, brands are increasingly tapping the power of emerging technologies like AR and VR to appeal to a new generation of tech-savvy shoppers who value personalised experience.”

The report, which builds on the survey findings of PWC’s Global Consumer Insights Survey 2019, also points to an increasing emphasis on customer experience among retailers in China, who are refocusing on business fundamentals such as profitability and cost management in the light of growing economic headwinds.

He says this year continues to be challenging for mainland Chinese retailers amid uncertain outcome of trade negotiations with the US and a slowdown in the economy. Mainland retail sales growth fell to a 15-year low at 9 per cent last year, signalling sluggish demand among Chinese consumers. As part of its wider efforts to transition towards a consumption-driven economy, the Chinese government has rolled out a range of stimulus policies including tax cuts, reduction in social insurance costs and incentives for high-tech consumption, with a view to building a more resilient domestic economy to mitigate external risks.

“In the face of a slowing economy and consumer market, retailers are going back to basics by pursuing a more defensive strategy, characterised by profitability focus, consumer-centricity and operational excellence,” says Phil Lai, PWC China consulting partner. “The story of New Retail continues, as retailers strengthen digitisation along the retail value chain through smart supply chain management enabled by technology and big data, with a laser focus on experience.”

Thanks to extensive mobile connectivity and established technology infrastructure, digital-savvy Chinese consumers tend to accept and embrace emerging technologies to a greater extent than their global counterparts. Sixty-eight per cent of Chinese consumers surveyed purchase products online at least once a week.

Technology enablement consequently fuels the hunt for new experiences that integrate digital into the offline environment. Close to 40 per cent of Chinese respondents said their in-store experience would be enhanced by the use of technology including IoT scanners, tablet and mobile checkout, and self-service kiosks.

As Chinese shoppers seek to redefine their experience with a frictionless purchase journey and a blend of both physical and digital interactions, retailers are thinking beyond the traditional return on investment (ROI) metrics to adopt a consumer-centred return on experience (ROX) strategy.

“Specifically, retailers need to map out their consumers’ purchase journey, isolate key customer touch points and factors that drive experiential moments, and invest more in aspects which directly impact those interactions and yield measurable results,” said the report.

Lai concludes: “From end-to-end digitisation to the rise of experience-based business models, the New Retail evolution in China has come a long way. To thrive in the world’s largest consumer market, we see retailers and brands becoming more digitally-agile and data-driven, using new technologies to fuse customer experience across the entire value chain, while monetising discrete moments and building communities with a purpose to ensure long term profitability and sustainability.”