Protests, Pandemic & Persisting Retail in Hong Kong

While the Coronavirus pandemic has only recently slowed down the global economy in the last few months, Hong Kong has been seeing a decline, for close to a year now. The reasons contributing to this fall are:

• The protests since July 2019 against the now-withdrawn extradition bill
• The onset of the COVID-19 pandemic since January 2020

While this has affected all the industries, it is the retail sector that has taken one of the hardest hits. In November 2019, when the protest was at its peak, the retail saw a decline of 23% in the retail sales.

The compounding effect of the pandemic caused this figure to escalate to 44% by February 2020. With many local businesses and international branches nearing collapse, retailers are working on newer strategies to keep their heads above water.

The Super-cold Winter

The Hong Kong economy rests on retail and tourism, and unfortunately, both these sectors have taken massive hits from the protests and the pandemic. Ten days into the Lunar New Year, the Hong Kong retailers have been facing a depressing winter with businesses shutting down everywhere. Luxury goods – which have always seen a large turnout of buyers from Mainland China – have now come to a standstill.

While industries related to food and supermarkets are still holding up, retailers in the line of jewelry, cosmetics, watches and fashion have been severely hit by both the events.Worried for its very existence, the Hong Kong Retail Management Association has called this winter “a super-cold one”.

The Renter’s Dilemma

Hong Kong has always observed a high rent rate in both residential and commercial spaces. The skyrocketing rents have often discouraged foreign businesses to set up chains in Hong Kong. However, with companies going under, local retailers are no longer able to afford this high fee.

The retailers, seeing an all-time low in the sales, are pushing the landlords to bring down the rents temporarily, and have even conducted strikes to this effect. Though the property-owners have lowered base rents for February (and some for even March), the retailers are asking for this fee to be waived off altogether and be charged only the turnover rent.

Annie Tse Yau On-yee, chairwoman at the Hong Kong Retail Management Association, has asked for government intervention and assistance in the matter.

Re-strategizing Retail

Despite these setbacks, the Hong Kong retailers are looking at newer frameworks, service offerings and technology to, if not avert, at least mitigate the effects of the crisis. Some of these strategies are:

Short-term leases

As some businesses, such as fashion and luxury goods, are seeing no sales at all and are still paying heavy rents, they are offering their retail space for short-term leases to other essential services.

This strategy not only gives them relief from paying a hefty rent but also allows them to work on developing new models of running the business (e.g. online-to-offline or O2O) that need time to establish and plenty of on-ground research.

Pop-up stores & shop mixes

Pop-up stores started as a trend in Hong Kong only recently. However, since the viral outbreak, they are proving to be beneficial to retailers, property developers and customers alike. Some of the features of the pop-up stores that are working in favor of this model are:

• Landlords can have a diverse mix of retailers with many pop-up stores in a single piece of land and attract foot traffic to their property
• While a single retailer may not be able to afford the rent of an entire property, through pop-up stores, a group of retailers can manage the base rent
• Pop-up stores allow retailers to verify on a small-scale if their brand can perform well in a given locality or not. They also get to experiment with newer products, services and experiences for a smaller audience
• Customers appreciate the eclectic experience of pop-up stores. Further, pop-up store scan even provide relief to the neighborhood by sourcing essential supplies

Innovative customer experiences

Despite these times of despair, some retailers are keeping their eyes on the prize that comes in the form of customer satisfaction. Hong Kong shoppers have always known to be a class apart. So, testing out new customer experiences on a small number of these select shoppers is a fitting course of action.

For instance, brands are looking at the experience of “retailtainment” by pushing the envelope on in-store experiences and incorporating Augmented Reality & Virtual Reality features. Some other retailers are also considering implementing an omnichannel experience with more emphasis on the virtual front in today’s contactless world.

Leveraging technology

Besides improving customer experience, retailers are increasingly using technology to capture data points of consumer behavior. As Hong Kong retail space is filled with mobile shoppers, analytics on this front has always been essential.

In light of the current situation, a greater number of users are now availing e-commerce options, and hence, leveraging technology to facilitate online shopping should be a priority now.

Hong Kong has always spearheaded the usage of technology to improve the shopping experience. For instance, Hong Kong was one of the first players to bring in cashless payment system through the Octopus card, as far back as in 1997.

Today, retailers are enabling omnichannel experiences, making use of Big Data to understand the digital footprint of the shoppers and personalizing purchase services. Retailers are making use of technology to impart in-house staff training and assure business continuity.

Making the best of the worst case

Ask an outsider, and for sure, they will say with confidence that the retail industry in Hong Kong is at its worst. However, the retailers there are not letting the present challenges bog them down and are striving to make use of all the resources that are available to them. One such critical resource is technology.

With the right technology, retailers anywhere can identify trending consumer behavior, run simulations to test new models of shopping and also open alternative channels for customer experience. Where “digital” used to be a buzzword, today it is one of the most vital aspects of retail.

By leveraging the right technology and by partnering with an expert solutions provider, like Vinculum, a retailer can not only make the best of the present crisis but also future-proof their business from pandemics, protests and any other global events.