HK’s battered retail business has gone to great lengths to ride out the storm sparked by the social unrest and the pandemic. Going online, devising different strategies and tapping into new markets become options for retailers to remain competitive. Sophie He reports from Hong Kong.

Retail’s on ice — that’s a more fitting representation of the industry in Hong Kong today as the city cowers under the weight of the coronavirus calamity and more than a year of social unrest.

The ubiquitous scenes of long lines of deep-pocketed shoppers snaking their way into top-notch brand-name stores and upmarket malls are long gone as tourist numbers have almost dried up, with tight travel curbs in place.

Hong Kong retailers have had more than their fair share of the economic woes plaguing almost every economy on Earth. Tourists from the Chinese mainland in particular — a key driving force behind Hong Kong’s retail boom — had been deterred from visiting the city ever since the social turmoil erupted in June last year.

But as COVID-19 rages, most residents have tried or are willing to try shopping online for groceries

Michael Cheng, consumer markets leader of PwC Asia Pacific, Hong Kong and the mainland

Tourist arrivals have been further hampered by the mandatory quarantine rules enforced to contain the spread of the virus.

The number of mainland visitors to the SAR slumped by 90 percent in the first six months of this year, contributing to a 33 percent plunge in total retail sales over the same period in 2019. This raises the questions — where will Hong Kong’s retailers go from here, how can they regain their competitiveness, and what should they do to survive and thrive?

Auditing and consultancy firm PwC sees local retail sales taking a hammering — plummeting by up to 20 percent this year from a year ago.

The retail business had a short-lived recovery in May and June as the year-on-year decline narrowed, Michael Cheng, consumer markets leader of PwC Asia Pacific, Hong Kong and the mainland, told the company’s webinar.

But the situation may deteriorate again from July as the more-severe third wave of COVID-19 infections began ravaging the city, sparking more-stringent social-distancing measures by the government, Cheng said.

However, he sees retail sales staging a rebound by November if the outbreak stabilizes and cross-boundary travel returns to normal.

PwC urged retailers to rethink their strategies and come up with new business models with a greater online presence and emphasis on online sales. They must rely less on physical stores and tourism-related sales, PwC said.

Indeed, local retailers have already switched a portion of their operations online. Cosmetics retail chain Bonjour said it will team up with livestreaming marketplace ShopShops to sell cosmetics through livestreaming — the in-vogue shopping experience.

The cosmetics group has been training its first batch of salespeople to go online to interact with viewers via livestreaming.

The move is to boost sales against the backdrop of a bleak market exacerbated by the financial and economic setback arising from the pandemic and the social unrest. Bonjour expects to strengthen ties with customers through cooperation with the interactive livestreaming marketplace.

Shopping via livestreaming has become one of the most popular shopping habits on the mainland, through which customers could gain knowledge of products via real-time engagement at home.

Influencers and key opinion leaders can reach millions of potential customers online. Beauty blogger Li Jiaqi, dubbed the “lipstick king”, claimed to have sold 15,000 lipsticks within five minutes online.

Data from iiMedia Research showed that the mainland’s livestream e-commerce business has hit 433.8 billion yuan (US$62.25 billion), and the figure is expected to double this year.

Cheng said that Hong Kong retailers’ online business has seen great improvement in the past few months as most of them took to online sales. But the practice remains a challenge as Hong Kong is a small city, and residents find it hard to shake off their habit of patronizing brick-and-mortar stores.

“But as COVID-19 rages, most residents have tried or are willing to try shopping online for groceries,” he said.

He advised Hong Kong retailers to look north for greener pastures as the mainland market is huge and the smartphone and internet penetration rate is very high.

If a retailer wants to do business online, there’s no better place to do it than on the mainland, he said.

William Deng, North Asia economist at UBS Global Research, told China Daily he believes not only Hong Kong retailers, but many worldwide are facing similar challenges due to the pandemic. However, the structure of the economy and the starting point of the virus shock could make a difference.

With regard to the externally driven demand for Hong Kong retailers, for instance, tourism plays a relatively bigger role compared to many other economies. The significant contraction of tourism is a relatively bigger challenge. Looking ahead, the risk of the virus lingering in waves and the required time for the travel industry to recover could also mean a more-prolonged threat for retailers and Hong Kong’s consumer-service sector.

In addition, the starting point for Hong Kong retailers in the COVID-19 shock was already weak due to last year’s protests, meaning the starting point balance sheet could be an issue for some retailers, especially the smaller ones. These are the “double shocks, double downs”, as Deng put it.

For local retailers, the key is to maintain and explore the comparative advantages and offer a distinctive shopping experience; for example, higher quality services, he said.

At the same time, Deng said, retailers should look farther north, such as the Bay Area, for fresh opportunities. They should continue to use online platforms not only locally, but also tap further into traditional markets like the mainland and new avenues, such as the Association of Southeast Asian Nations.

Pascal Martin, partner, OC&C Strategy Consultants, told China Daily that clearly, Hong Kong has a very dense retail environment. Some brands, particularly in the luxury sector, have opened up a disproportionate number of local stores on the basis of a very aggressive growth hypothesis regarding mainland visitors.

These brands need to adjust the number of stores they operate, and OC&C said many of them had decided to close a few.

On the other hand, retailers that are right “on trend” are expanding their brick-and-mortar presence. An obvious way to upgrade the sector’s competitiveness is to bring rents down, and retailers have become increasingly aggressive in taking on landlords over the issue, Martin said.

“We’re beginning to see rent cuts as the number of empty spaces has been going up at Hong Kong malls, although some landlords have come up with preconditions such as longer leases,” he said.

In the final analysis, it’s paramount for retailers to keep in touch with customers after they’ve been to their physical stores. Focusing on e-commerce and managing customer relations are the only “costs” that are not being reduced in this time of belt-tightening across the board, he added.

Contact the writer at sophiehe@chinadailyhk.com