On Haiphong Road, a branch of the well-known C.S.S. Jewellery Company, long a fixture in the area, is no longer there.

After the jeweller moved out late last year, a low-end fashion shop took over for about seven months before the landlord signed a six-month lease with Mask Factory.

“The rent of shops at street level is relatively affordable. Although the items we sell are quite cheap, they are in demand,” said the company’s co-founder, a filmmaker who prefers to go by the name “Mr Tong”.

The monthly rent of HK$208,000 (US$26,828) for roughly 2,000 square feet had come down from more than HK$1 million that C.S.S. Jewellery used to pay, Tong said.

The store is its first bricks-and-mortar shop, and it is planning to open four more by Christmas.

“Online is definitely the future, but with the exposure from physical shops, we hope to make our business more solid,” he said.

From January to September, retail sales in Hong Kong plunged by nearly 30 per cent year on year to HK$238.9 billion.

With tourism practically at a standstill for most of this year because of Covid-19, many shops previously patronised by tourists have come to grief in prime shopping areas. The result has been empty shop lots, lowered rents and demoralised retailers.

Between July and September, the overall vacancy rate in Tsim Sha Tsui, Causeway Bay, Mong Kok and Central reached a record high of 17.7 per cent, according to property consultancy Cushman and Wakefield. Mong Kok’s rate of 23.6 per cent meant nearly one in four retail units was empty.

Overall, retail rents were down 37.3 per cent between July and September, compared with the same period last year.

Hong Kong Retail Management Association chairwoman Annie Tse Yau On-yee said with no visitors arriving, some retailers in tourist areas were reluctant to renew their leases despite slashed rents.

Even as borders reopened, it would take a long time for tourism to return to former levels, Yau said.

“Will we go back to the days before the pandemic or before the social unrest? It will be quite difficult,” she said.

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Alan Cheung Ho-lun, who runs the Sands Medicine Shop in nearby Wan Chai, said he knew of more than 10 pharmacies in Causeway Bay that had closed since the tourists stopped coming.

He said his sales had declined by two thirds compared with 2018, and he had survived by sending items such as medicine and vitamins by mail to customers in Shanghai, Zhejiang and Hunan provinces.

He has also improved his shop’s presence on the social media platform WeChat, running promotions and offering discounts of about 30 per cent. That resulted in online sales of more than HK$100,000 a month, partly making up for the losses at his shop.

Cheung intends to ask his landlord to lower his rent from HK$60,000 to HK$40,000 and if he fails, he will opt for a short-term monthly lease.

“That will give me leeway to leave anytime,” he said.

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Kevin Lam, executive director and head of retail services at Cushman and Wakefield, reckoned that low vacancy rates would persist until at least March.

“Brands, especially international retailers, are extremely concerned about the new trade mix emerging on the high streets,” he said.

Oliver Tong, head of retail for Hong Kong at Jones Lang LaSalle said jewellery stores, watch and clock sellers, pharmacies and cosmetic shops were likely to continue suffering poor sales.

In future, the city’s main shopping streets were likely to have fewer luxury or tourist-oriented businesses, and some luxury brands might reconsider the number of outlets they have in certain areas.

“They may decide they do not need so many shops even after the city is back to normal,” he said.

With no clear indication of when a Covid-19 vaccine would become widely available, Tong said Hong Kong retailers would have to focus on local shoppers for the next 12 to 18 months.

He expected lifestyle businesses selling snacks and household products, and retailers offering products in the mid- to mid-high price range to emerge, and said this trend could last for at least the next three years.

“Japanese-style products are very popular in Hong Kong,” he said, noting business at discount chain Don Don Donki, lifestyle label Muji, and fashion brand Uniqlo had remained stable.

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Brands such as these might take advantage of the current vacancy and rental situation to secure good locations, he added.

While Don Don Donki was doubling its outlets to six by early 2021, he said sports chain Decathlon, and food and drink companies serving Japanese-style or takeaway food were looking for new retail spaces too.

Hang Lung Properties’ leasing and management director Bella Chhoa Peck-lim said its establishments in tourist areas, including Fashion Walk in Causeway Bay and Grand Plaza in Mong Kok, had not seen a serious change in tenant mix, unlike the churn on the street.

Although some affordable luxury fashion brands downsized this year, other fashion and lifestyle brands moved in as new tenants, she said.

Bright spots in supermarkets, online

If there was one bright spot in the retail sector throughout the pandemic, it was the supermarket business, with official data showing year-on-year sales increases for nine straight months this year.

With more people staying home as social-distancing measures kicked in this year, more did their shopping at supermarkets.

Yata Department Store, which runs 13 shops including Japanese-style stores and supermarkets, is planning to expand its business next year, according to CEO Susanna Wong Sze-lai.

She said that while sales at its department stores dropped by double-digit figures from January to September compared with the same period last year, its supermarkets achieved double-digit increases, which resulted in a 10 per cent growth in overall sales.

That prompted her to consider expanding its convenience stores to offer fast-food products. In September, it opened its first Konbini outlet in Sha Tin, stocked with snacks, ready-made food and easy-to-prepare meals.

The pandemic also drove more people in Hong Kong to shop online.

Market research provider Euromonitor International estimates that while store-based retail sales will shrink by about 20 per cent to HK$347 billion in 2020, online sales will jump about 25 per cent to HK$30 billion.

Hong Kong Television Network, which runs the e-commerce giant HKTVmall, credits the pandemic with helping it to break even in the first half of this year, 18 months sooner than anticipated.

HKTVmall said it achieved a net profit of HK$109.3 million during the first half of this year. About 250,000 users visit it daily.

The shopping platform has expanded its offerings by drawing in more than 100 big brands in 13 shopping centres, including Elements, IFC Mall and Harbour City.

“Once consumers try online shopping, they will stay online. They will not leave just because the pandemic has eased,” said Jelly Zhou Huijing, its CEO (Hong Kong).

She pointed out that HKTVmall’s October sales were better than in September even though the number of Covid-19 infections declined.

She said 93 per cent of customers who spent more than HK$3,000 on the platform last year stayed and shopped again this year. On average, they spent more than HK$7,000 this year.

Listed beauty product firm Mi Ming Mart Holdings registered a decline in revenues of only about 2.3 per cent year-on-year for the six months ending on September 30, thanks to its online sales tripling to HK$9.2 million over that period.

Chairwoman Erica Yuen Mi-ming said online sales used to rank behind the takings from her 10 bricks-and-mortar stores, but recently the e-commerce platform rose to second or third spot.

The pandemic drove her customers online. “When infections hit the city in February, there were so many online orders that we couldn’t finish sending out our products even after three weeks,” she said.

She has revamped the website, using data analytics to connect better with customers, and expects them to continue shopping online even after the pandemic ends.

Steven Li, 29, who never shopped online before the pandemic because he was afraid of buying the wrong products and the bother of returning goods, took to the internet while staying home more this year.

A finance sector employee, he was soon shopping online two to three times a month, spending HK$300 to HK$800 each time. At first, he bought daily necessities mainly, but later found himself shopping for clothes, books and leisure items too.

“I bought some gym equipment online as gyms were forced to close. The prices were half of those in physical stores and the business owner was so caring and taught me how to use the items,” he said.

He expects to continue shopping online, attracted by the lower prices.

Alice Yip, head of consumer and industrial markets in Hong Kong at KPMG China, noted that the pandemic had made shoppers more cautious in their spending.

That means retailers now have to do more to persuade shoppers to buy from them.

“It’s another kind of competition. It’s about who understands their customers better,” Yip said, adding that retailers must invest more in technological resources and data analytics to identify ways to attract customers and work out better loyalty programmes.

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“Consumers still have the desire to spend money. The crux is whether retailers are willing to invest in the infrastructure for data analytics,” she said.

Simon Lee Siu-po, co-director of the international business and Chinese enterprise programme at Chinese University, said that after more than a decade of catering to big-spending mainland Chinese tourists, Hong Kong’s retailers now have to appeal to locals with products they want and more affordable international brands.

“We won’t be able to resume the good old days any time soon,” he said, adding that he would not be surprised if it took three to four years before tourists returned in their previous numbers.

Lee said there would be stiff competition for tourists as the pandemic eased, but Hong Kong could stay ahead if it offered quality products at good prices and excellent after-sales services.

“But it will be really hard to bounce back now as we have to wait for the tourists to return. The old model catering tourists was totally unrealistic,” he said.

Read the first part of the series, which looks at what shopping centres are doing to get locals spending again, here.

Familiar storefronts are shuttered, rents have plunged and retailers of lower-priced goods have arrived. In the second of a three-part series on Hong Kong’s battered retail scene, the Post looks at the ongoing overhaul of the city’s main shopping streets.