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What is the future for retail in Hong Kong?

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The latest figures for Hong Kong’s retail market were released last week, reaffirming that the situation remains bleak. Despite some positive signs in recent months, retail sales for July 2016 were down 7.7% year-on-year, recording the 17th straight month of decline.

Many brands, especially those in luxury, have been vocal about the impact the downturn has had on their overall business. So what are the key reasons for the slowdown and should we be surprised?

Dependence on mainland Chinese

The Occupy Central protests did not just have an impact on the foot-traffic in key retail areas. The bigger factor has been the slowdown in the number of mainland Chinese shoppers, with many deciding to stay away or shop in other markets such as Taiwan, South Korea, and Japan where they can enjoy a more a favourable exchange rate.

Whether we like it or not, the Hong Kong retail market has become heavily dependent on the mainland Chinese shoppers and are now paying the price.

SEE ALSO: F&B growth to boost Hong Kong retail

Oversaturated and monotonous malls

In the last few years, the retail offering has been boring consumers. Apart from the price of certain goods, there is little that now differentiates the Hong Kong market from that of mainland China.

Many malls have become meccas for the same brands, resulting in little differentiation. And as the sophisticated consumer evolves, they prefer something different other than luxury.

As a result, many shoppers are looking further afield to markets such as Japan, South Korea, Europe and the United States where there is a wider selection of brands and products to choose from.

How to turn things around

In July, arrivals by mainland Chinese grew by 2.2% – the first year-on-year increase in 13 months — likely a result in the Chinese tourist wanting to stay closer to home due to the recent terrorist attacks together with the strengthening of the Japanese Yen.

In order for Hong Kong to return to its dizzy heights of only a few years ago, fundamental changes need to be made. One of the main ways to address the problem is for both the landlord and retailer to have a clear understanding of who their target customer is and how they like to shop.

Landlords need to freshen up their tenant mix and reflect the changing attitudes of the consumer, who are not only mainland Chinese consumers drawn to luxury, but now mostly Chinese millennials looking for trendy products. Do not chase after the same brands as this will result in a sterile retail landscape.

SEE ALSO: 3 characteristics of Chinese consumers you should know

Hong Kong retail rents

What’s going to happen to the rental levels? Hong Kong’s limited supply and high demand for space has resulted in some areas to significantly escalate.

While we are starting to see rentals in some areas come down by 30 – 40%, there are other pockets that are holding firm and it is our view that in the ‘ultra prime’ areas, we could even see a rental increase as brands fight for prime space.

The short-leases offer retailers a level of flexibility with some taking a step-back to review their position in the market before deciding on their next steps. Even if they start closing stores in high profile locations now, they will still be able to re-enter these areas in the short-term once positive signs emerge.

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James Rogers is the founder and managing director of CR Retail, an insight-driven retail consultancy providing advice and guidance to brands looking to engage with the Chinese consumer whether in greater China or the retailer’s home market. With over nine years experience working in China and the wider Asia Pacific region, James is known for his diverse knowledge advising retailers on their entry and expansion across the region.

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