The Hong Kong luxury retail market bounced back recently thanks to a cheaper local currency. Data released by the Hong Kong Bureau of Statistics showed that retail sales in the market grew 14.3 percent in the first quarter of 2018, but whether it will return to the boom times of 2012 is up for debate.
Retail accounts for 4.1 percent of local GDP, and luxury sales have been a real growth engine for the sector in Hong Kong. What’s causing doubt is that the share of high-end luxury brands in retail has been shrinking, according to David Ji, the head of research consultancy Knight Frank for Greater China. The trend among Mainland Chinese visitors is away from purchasing luxury items to buying more mid-priced products.
Experts argue this shift is largely due to the changing mindset of Chinese consumers. With more options available for obtaining luxury items at a reasonable price at home, Chinese shoppers are keen to explore more exciting luxury shopping experiences. Traveling to Hong Kong to get luxury items for less is no longer a draw.
Historically, Hong Kong has relied on Mainland Chinese tourists, and tourist traffic can rise and fall significantly depending on the political and economic climate.
In reaction to high rents and unpredictable demand, many luxury brands are experimenting with pop-up shops they hope can deliver unique experiences to both Mainland Chinese tourists and local shoppers.
For instance, on April this year, Prada set up their ‘Prada Silver Line’ pop-up shop in the shape of a railway station. Located at the Pacific Place shopping mall, the store featured a mix of bags and accessories from different collections. The pop-up shop debuted in Macau, and will travel to locations in Asia, Europe, and the United States in 2018.
Similarly, early this year, Valentino hosted a VLTN Men’s pop-up store with a sports theme at Hong Kong’s IFC mall. The brand worked with well-known male celebrities, and highlighted tracksuits and bomber jackets in store.
Chinese e-commerce giants have also begun to treat Hong Kong as a laboratory for their experiments in offline commerce.
A newly published report by JLL, entitled Reimagining retail: Bricks, mortar, and the evolution of e-commerce in Hong Kong, describes Hong Kong as traditionally a physical retail market. As one of the most densely populated cities in the world, Hong Kong has a high concentration of stores, supermarkets and malls, making it very convenient and efficient for people to spend an afternoon shopping. Consequently, e-commerce has been less appealing. Now, as e-commerce platforms spread their wings, Hong Kong has become a go-to environment to experiment with omnichannel approaches.
Jack Ma remarked that Hong Kong is a strategic location for Alibaba, a stepping stone for taking Tmall global. During last year’s Double Eleven Festival, Alibaba established Tmall experiential stores at Hong Kong International Airport. They also included Alipay and Alibaba cloud as basic infrastructure in their expansion to Hong Kong.
Also, Chinese online retailer JD.com has partnered with Hong Kong-based Li & Fung Retailing, which has a network of over 3,000 stores locally and abroad, to develop artificial intelligence-driven retail solutions.
Despite the significant changes to how things have traditionally been done, Eric Cheng, Local Director of Retail at JLL Hong Kong, said he is confident about the future of retail in Hong Kong.
“The cost of opening a physical store has significantly lowered at this point in time following Hong Kong’s three-year slump in retail rentals,” he said. “This offers a natural window of opportunity for online retailers looking to expand into the bricks and mortar world, allowing them to secure coveted retail spaces with more reasonable rental rates.”
“We are positive that physical stores will be in more demand than ever, but their purpose and operation will change,” he said.