In a truly global marketplace, Hong Kong retailers must evolve to remain competitive

Douglas Young looks at the factors affecting Hong Kong retail sales, not least the impact of e-commerce

PUBLISHED : Sunday, 16 August, 2015, 10:31am
UPDATED : Sunday, 16 August, 2015, 10:31am

It has been a difficult year for retailers in Hong Kong. A number of contributing factors have come together, creating a big impact. Some are well known, such as the reduction in spending by mainland tourists. Another is the rising trend of Hong Kong people to spend overseas, shopping in popular holiday destinations such as Thailand and Japan.

Then, there are factors that have been brewing in the background for some time, which are now entering "maturity". One is the after-effects of too much instant-gratification retailing.

At the dawn of the millennium, there was an influx of foreign brands into Hong Kong with an agenda of establishing a beachhead to conquer the lucrative China market. Local consumers were suddenly offered much more choice. As a result, local brands, which had previously dominated, suffered. This was also a time when the so-called "fast retailers" were able to offer high style at low prices, previously thought impossible. Consumers went on a decade-long shopping binge, stockpiling more than they will ever need for years to come.

Increasingly, even for those who still have disposable income, they are not spending for material returns, but for "new experiences". After all, with every repeated purchase of jewellery, handbags, clothes and watches, the novelty factor diminishes. New experiences can be had by going on holiday to never-been-before places. People are also visiting "new" restaurants. And things considered a "new invention" are being bought - these, after all, also offer "new experiences".

Another factor also contributing to this year's slowing economy - one that is rarely talked about - is the internet. Of course, it's not new. Yet it is only now that a significant impact is being felt - the result of a confluence of technological developments; the advent of the internet and e-commerce has been two decades in the making.

With the exception of certain sectors deemed "e-tail-friendly", such as music stores and bookshops, where a negative impact has long been felt, many other types of retail business have until now been largely immune. After all, our malls have still been full. Many brands even managed to enhance their presence by running websites designed to give their customers more "eyeball" time, thus building brand loyalty.

With the coupling of advanced mobile handset technology and high internet speeds, however, 2015 is proving to be a tipping point for the general retail scene. It is the year when users are finally able to experience an almost hassle-free online service.

When I needed to replace a broken light fitting in my bathroom, my reflex reaction was to go to the lighting shops in Wan Chai. I couldn't help but notice many were having "closing down sales". I assumed it must be due to rent increases. In the summer heat, having to visit every shop to explore my options was not pleasant. And I failed to find something I liked that was also in my budget.

Back home, after a quick browse on the internet for light fittings, I found a product on a trusted website. Best of all, I spent only half my budget. Is it any surprise that physical shops are closing down?

Even when I'm in a shop, I now automatically check the item online on my phone to compare prices. It has become so easy to compare prices that physical shops have effectively become places just to try things out. With local shops burdened with high rents, the best prices are to be found online and the transaction is likely to be made elsewhere in the world.

When virtually everything can be sourced online and hence is accessible, it takes shopping almost to a subconscious level. If shopping is considered an activity that ends with a "reward", then the degree of satisfaction is proportional to the difficulty of the process. Before the internet, one needed to make much more of an effort, at much greater expense, to bag that special "reward". Those were the days when "luxuries" were truly such because they were much less commonplace. They were accessible only to the very few, namely those who could afford them, knew where to get them and had the means to do so. The internet has killed off the thrill of the chase. When one is satisfied with the knowledge that anything is just a few clicks away, at any time of the day, the knowledge of this potential is enough to satisfy, without the need to acquire the actual article.

This brings us to the last reason why people are not shopping: the show-off factor. An undeniable joy of owning something special is the feeling of exclusivity; something that can elicit a sense of envy when displayed. The internet has also killed this aspect of material acquisition. It may be a good thing, for it reduces our dependence on materialistic pursuits but, surely, it cannot be good for business.

Retailers now need to focus on the experiences that are not possible in e-commerce. Of the five human senses, only the sense of sound and vision can be conveyed online. The other three - touch, taste and smell - have to be experienced first-hand. So, retailers can focus on these senses to enhance the customer experience.

Another advantage physical shops have over e-commerce is personal service. In a world increasingly devoid of human contact, this is a valuable edge. After all, websites are merely automated processing machines, whereas physical shops can provide individual service to make customers feel satisfyingly important.

In the same way that the popularity of videos did not spell the end of the cinema, e-commerce will not completely replace physical shops either. They have been around too long to die off so easily. Instead, they will have to evolve - to version 20.0.

Douglas Young is co-founder of Hong Kong-lifestyle brand GOD