Will Hong Kong retail ever catch a break?

The current dramatic increase in Covid-19 cases in Hong Kong has prompted the government to impose numerous social distancing restrictions impacting certain sectors directly, most notably the travel, hospitality and F&B sectors. The other sector that has been constantly hit by the numerous winds of change in Hong Kong since the 2019 protests is the retail sector. This sector however has been handled quite differently. Despite fewer or no direct social distancing restrictions, retail businesses are still reeling from the 2019 protests and the last two years of pandemic measures. Although malls and stores were never officially shut and are today still open for business, the restrictions on other sectors and the surge in Covid-19 cases over the last week are now heavily impacting footfall, consumer sentiment, and resulting in a huge decrease in sales, close to zero for the majority.

Hong Kong has been closed to tourists since 2020, forcing the retail sector to pivot to supply only the domestic market. After a very challenging year in 2020, the retail sector benefited from a brief but fragile respite in 2021. The retail landscape hugely morphed over last two years with many brands such Topshop, J-crew, Gap and Victoria’s Secret exiting the market or others like Prada, Coach, La Perla and Burberry to name a few, reducing their physical presence in the city, leaving previously bustling tourism shopping hubs like Causeway Bay and Central with a completely new tenant mix. There has also been a dramatic increase in online shopping, fueled by these new options for local consumers, however most of this online growth has been attributed to essential shopping.

Throughout this two-year period, the government supported retailers through a HK$5 billion subsidy scheme in June 2020. This was followed by government distribution of consumption vouchers starting in July 2021, to boost and sustain the economic recovery. Landlords also favoured shopping coupon schemes over actual rent relief during this period, and whilst some landlords did provide short term discounts on rent, most came with lengthy negotiations and conditions attached for rent renewals.

All in all the retail sector, who once focused heavily on the Hong Kong market for its Asia growth, is today once again in dire straits, if not at its breaking point. Since Hong Kong entered the fifth Covid-19 wave and new restrictions were imposed on all restaurants to close at 6pm, combined with school closures and encouraged work from home, today the footfall in major Hong Kong malls of the main commercial districts has reduced by as much as 70 percent. As Hong Kong’s retail sector faces a major crisis, brands and retailers need support from landlords and the government to ensure they can survive and save the sector’s few hundred thousand jobs through the current outbreak.

So what exactly do brands and retailers need to survive?

Recognition from the government that whilst the retail sector has not been ordered to stop its activities, the foot traffic to non-essentials stores is at an all-time low. The latest Anti-epidemic Fund (AEF) announced by the government on 14th February seeking to inject $27 billion to support businesses affected by the pandemic offers zero relief to the retail sector. The majority of teams in non-essential retail rely on commissions to make a living, and this needs to be addressed through subsidies for the staff and the sector as a whole.

Landlords and large real estate groups need to proactive and be part of the solution. In the last week, only a few landlords have offered certain rent rebates of between 30 to 50 percent, however the infamous conditions of contract renewals tied around these rebates are not sustainable nor acceptable. The reality is that landlords need to play their part in the retail ecosystem, act socially responsibly and work with their tenants when times hit such a low point. The base rent should be waived and only a low turnover rent should apply for periods with extremely low foot traffic.

Most importantly, there needs to be a plan for the future of the city to address the retail community. The vaccine pass to be implemented on the 24th of February should provide some comfort in making consumers feel safe. However, based on the upward trend of the virus proliferation, it may have come in too late to address the current wave. General education about the virus and how it can be handled by the public is key to making this society fully functioning again and protecting the 250,000 jobs in the retail sector.

It’s time to face reality, two years have passed, it is time to make this work.

Author: Jane Fondini

Disclaimer: The views and opinion expressed in the article belong solely to the original author and do not represent the views, opinions and position of Retail in Asia.