Hong Kong retailers should invest in China, e-commerce to drive growth, experts say

PUBLISHED : Thursday, 18 May, 2017, 7:01am
UPDATED : Thursday, 18 May, 2017, 7:00am

As retail sales return to growth after two years of continuous decline, there are two things Hong Kong’s merchants and brands should be doing to keep that momentum going, say industry experts.

The first is to break out of their comfort zone of ‘physical retail’ and the second is to expand into mainland China.

“2016 was the most difficult year in the Hong Kong retail and consumer products sector in the last decade,” Michael Cheng, PwC Asia-Pacific and Hong Kong/China retail and consumer leader, told journalists on Wednesday.

He cited Hong Kong’s tightening of the multiple-entry visa scheme last year and the Chinese government’s anti-corruption drive as the main reasons for the slump in the number of mainland tourists spending money in Hong Kong since 2014.

China is a must-play, must-win market for retailers and brands globally
Michael Cheng, PwC

Cheng said Hong Kong’s retail industry should reduce its heavy reliance on mainland visitors, and should instead attempt to attract more global and local customers to boost the market.

“If Hong Kong retailers want to grow, they need to do something more, leave their comfort zone and go into e-commerce, invest in China,” Cheng said, pointing out that the city’s merchants still heavily rely on physical retail.

In PwC’s Total Retail 2017 report, 67 per cent of Chinese consumers surveyed said that their mobile phone will become their main shopping tool, with 52 per cent shopping on their smartphone on a weekly or daily basis.

This has driven merchants in China to merge online and offline retail to create a “seamless experience” for consumers, in what PwC calls the “new retail normal”.

“For China, the internet is mobile,” said Tom Birtwhistle, senior manager for digital strategy in PwC.

But Chinese consumers are not just voracious shoppers in the e-commerce landscape – they are now also treating e-commerce platforms as entertainment platforms, Birtwhistle said.

“One of the biggest mistakes is that multinational retailers, when they’re thinking about China, they think Tmall is the Amazon of China. But it’s not, it’s very different. Tmall is much more like a search and discovery engine,” he said.

According to PwC, 61 per cent of consumers start their product search on Tmall, and because the consumer journey starts on such platforms, they “want to be entertained.”

This explains why Alibaba has started including live-streaming, augmented reality and virtual reality on its platforms, Birtwhistle said. Alibaba owns the South China Morning Post.

“China is a must-play, must-win market for retailers and brands globally. The increasing purchasing power of China’s 415 million millennial consumers will sustain future growth,” Cheng said, adding that this is a “new window” of growth for Hong Kong retailers.

It is estimated that China’s online retail market will grow from 17 per cent of total retail sales in 2017 to 25 per cent by 2020, based on data from Goldman Sachs.