Hong Kong’s retail sector is now facing an unprecedented crisis caused by the fifth wave of COVID-19 that hit the city last month. With a slump in both footfall and sales in brick-and-mortar stores in the last few weeks and the recent announcement of an upcoming mass testing in March 2022, the local retail sector is at its breaking point. Despite the introduction of the vaccine pass coming into effect for malls and other public venues on 24th February, retailers are clearly in need of support.
On 23rd February, the Hong Kong SAR Government announced its plans to roll out a new round of consumption vouchers with half of the HK$10,000 (US$1,280) electronic consumption vouchers for permanent residents to be issued partly in April. CBRE reported that the scheme’s scale has increased one-fold compared to that of 2021, totaling HK$66.4 billion (US$8.5 billion) which also amounts to 18.8% of Hong Kong’s total retail sales in 2021 and 3.5% of private consumption expenditure last year. Many retailers are concerned that those vouchers not only will come too late but will be mainly used, like last year, on supermarkets for essential goods (Food and beverage) that are not the sectors suffering.
According to the South China Morning Post, “the measures will serve as a shot in the arm for the struggling economy, which grew only 3 per cent this year, after a 6.4 per cent increase last year from 2020. This year’s economic growth is forecast to be anywhere between 2 and 3 per cent”.
Some landlords also announced rental relief such as Swire Properties that announced on 25th February its unprecedented move for a landlord group in Hong Kong to waive base rent in order to save its tenants. Swire Properties has been the most supportive and pro-active landlords since the protests in 2019 and the new announcement is a huge relief for the retailers & F&B players.
The second key relief introduced by the government is the 6 month rent deferral plan which applies only for certain sectors of SME (non manufacturing companies employing less than 50 employees) and is modeled partly on Singapore’s plan to support on rent payments. With this new legislation, the Hong Kong landlords will be banned from terminating tenancies or taking legal action against business tenants from specific sectors for up to six months. The measure was set to help small and medium enterprises (SME), “taking into consideration that rental payment constitutes a major part of the operating expenses of enterprises,” said Financial Secretary Paul Chan, adding that “many SMEs currently face huge challenges amidst the adverse business environment.”
However many retailers, head of retail associations and SMEs expressed concern again as it is just delaying payment and is not a sustainable support on their rental burden. Some fear it may even give a good reason for the landlords to not offer any concessions at this stage and may be a counterproductive measure for many retailers.
“This fifth wave comes after three difficult years for SMEs and independent retailers. Most don’t have any reserves anymore to face the huge decrease in turnover. If we don’t receive targeted help from government and landlords, many closures cannot be avoided, and the associated loss in jobs” said Arnault Castel, Founder & Owner of the concept store Kapok.
With plummeting consumer sentiment, an unemployment rate likely to shoot up in the coming months and travel bans and borders remaining closed until further notice, a looming vaccine pass scheme, it seems the worst is yet to come for Hong Kong retailers… and the new measures won’t be sufficient for many of them caught in this perfect storm and would be in a better space with a full lockdown and closure of the malls & non essential businesses in order to save their rental expenses at all cost.
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.