Concrete Analysis | Hong Kong’s retail industry to overcome challenges posed by protests, coronavirus with value-added services, strategies
- Short-term leases and pop-up stores to be main source of leasing activity in Hong Kong for now
- Sharp decline in retail sales a clear warning for retailers to reposition and restrategise
The temperature has dropped, and the retail sector is suffering from further headwinds in Hong Kong, the outbreak of novel coronavirus being its latest challenge. Store owners are finding ways to stay warm amid the current adverse climate, where visitor arrivals and overall consumption have deteriorated. But it is not enough to simply wait it out.
Over the past few months, we have seen cases of local pharmacies, larger food and beverage outlets and fashion chains abandoning their leases. Understanding the difficult situation, landlords and high-street shop owners have been willing to be flexible, by offering short-term lease discounts to retain tenants and alleviate the impact of the social unrest and the coronavirus epidemic on retailers’ performances.
The sharp decline in retail sales – a 23.6 per cent drop in November, according to government data – could not be a clearer warning for retailers in Hong Kong to reposition and restrategise. That said, short-term leases and pop-up stores will remain the main source of leasing activity in the meantime.
Some retailers occupying larger retail spaces are looking for new tenants to take over part of their leases, as they seek to consolidate their business and refine their sales strategies.
Retail consolidation is not only about shop distribution and shopfront sizes, but also entails a review of product offerings and the targeting of new segments. Considering the significant decline in visitor numbers over the past quarter, the customer base has been reshaped, coming with different appetites in terms of product types and styles, particularly in luxury goods.
Expect a new mix of shops
In the short term, we will see rent levels continue to drop as the current challenging climate is expected to put further pressure on retail and tourism. Our latest market outlook for 2020 forecasts a 15 per cent to 20 per cent rental correction in core retail districts.