Hong Kong's struggling retail industry to suffer single-digit growth

Big-time blows from small-time growth.

Hong Kong’s retail market enjoyed an improvement in the third quarter of 2014 due to improving sentiments, and the industry is expected to see a small single-digit growth for the whole of 2014.

According to a release from PwC, however, uncertainties locally and externally could still affect retail sales. PwC suggests retailers should introduce O2O business models in order to lay the foundation for long-term growth.

Hong Kong retail sales decreased for the sixth consecutive month in July, dropping 3.1% year-on-year.

For the first seven months of 2014, total retail sales declined by 1.5% in value.

PwC believes continuous economic growth, wealth generation caused by the improving stock market in Q2 and early Q3 of 2014, and relatively less typhoons and rainstorms in this summer are the driving factors for the rebound in retail sales especially in the food and beverage and consumer products sectors.

The market also saw a surge in the sales of beauty and healthcare products and festive food such as mooncakes.

Here's more from PWC:

With the National Day Golden Week approaching, plus the traditional shopping spree in the fourth quarter, local retailers are expected to gradually regain their lost ground.

However, retailers should pay attention to a series of risk factors that could affect the retail market, “The way the HKSAR government are adjusting quotas for visitors from China, conflicts between Hong Kongers and Mainlanders, as well as local political and social unrest are likely to have a negative impact on the consumer market.

With the recent strengthening of the US dollar, some tourists, and even local consumers, prefer to shop overseas. All these could slow down the recovery of the retail market if the situation continues.

But we see that retailers are putting more effort to lure local shoppers in order to create a more stable revenue stream in the future,” Michael Cheng, PwC Asia Pacific, China and Hong Kong Retail & Consumer Leader says.

Sales of luxury goods remain weak due to the Chinese government’s longer-than-expected anti-corruption campaign and reform of the remuneration system of state-owned enterprises. Beijing’s implementation of a frugal culture has also restrained the traditional gifting activities.

The luxury goods market has yet to bottom out. PwC expects Hong Kong’s luxury market to revive mostly in the middle or second half of 2015.

“With limited physical growth in Hong Kong’s retail market and the continuing increase in rental, wages and raw materials prices, retailers should look to Mainland China and overseas market to drive their long-term revenue growth.

In fact, many local and international brands have developed their online sales platform in recent years, or promoting their products through “pure plays”, but they have yet to effectively establish a mature operating and revenue model.

We believe retailers should shift to a “Total Retail” approach, which brings a digital experience to the physical world for customers, while offering a more integrated and personalised experience, by using technology to interact and communicate with shoppers in order to improve customers’ confidence and loyalty to retail products. This is an irresistible trend,” Mr Cheng says.