Hong Kong retailers must change their ways to stop falling sales, industry experts say

The drop in sales figures is a wake-up call for Hong Kong retailers to reinvent themselves to win back shoppers amid changing spending habits, especially residents choosing to spend across the border, industry leaders said.

Alarm bells rang on Tuesday when official statistics showed retail sales had fallen by double digits for two consecutive months, dropping 11.5% year-on-year in May after a 14.7% decline in April.

Industry executives and a lawmaker on Wednesday urged retailers to change the way they operate, including by boosting online sales channels and revamping business models, as visitors prefer experiences to splurge on consumer goods while Hong Kongers head to mainland China for cheaper, better service.

Some have called for improving the quality of service as a first step.

“Retail businesses need major reforms as they are no longer competing with the next-door store, but with various sectors in the Greater Bay Area,” said Wingco Lo Kam-wing, chairman of the Hong Kong Chinese Manufacturers Association.

“We are currently going through a period of adjustment and the retail sector in Hong Kong needs to think about new advancements.”

Mr Lo said the strength of the Hong Kong dollar had driven higher spending in the city. He added that the growing shift to online shopping was part of changes in consumer habits that also played a role.

For example, American supermarket chain Sam’s Club in Shenzhen launched drop-shipping services for online shoppers in Hong Kong in June.

In the first five months of 2024, the city welcomed 18 million visitors, 76.6% of whom came from the mainland, but retail sales fell 6.1% year-on-year during that period.

To attract more visitors and boost consumption, Lo suggested improving the tourist experience by including elements from other local sectors.

Visitors will be able to, for example, visit the filming locations of famous films and TV series or experience first-hand the process of making local products, he said.

He also called on companies to come up with more innovative and distinctive products to attract consumers, noting that younger generations are now more focused on profitability as well as the stories behind brands.

Oliver Tong, director of retail at real estate consultancy JLL Hong Kong, said retailers should improve their service as a fundamental part of their reinvention.

“Customer experience is important to consumers right now,” he said. “I’ve heard from many people that the quality of service is better across the border, and there’s also a courtesy campaign underway in Hong Kong.”

Lawmaker Michael Tien Puk-sun said the retail sector’s inertia was a factor behind the slowdown, which was reflected in their products, services and infrastructure.

Tien said the government should invest more in large-scale tourism infrastructure rather than spending money on fireworks, which would not attract the big spenders the industry needs.

Lam Chi-chung, director-general of the Hong Kong Department Stores and Commercial Staff General Union, urged businesses to expand online and make good use of social media platforms to reach consumers to increase sales and revenue.

He suggested companies look for opportunities during the upcoming Paris Olympics, which begin later this month, including streaming events to increase foot traffic and boost consumption.

Professor Terence Chong Tai-leung, executive director of the Lau Chor Tak Institute of Global Economics and Finance at the Chinese University of Hong Kong, said the structural shift in online shopping had led to the gradual closure of some physical stores, calling it inevitable given the development of technology.

“In the age of technology, physical stores may no longer be necessary. It’s the same in every economy,” he said, noting that retail sales had also fallen elsewhere.

Additional reporting by Harvey Kong