For scores of protest-weary retailers in Hong Kong, late January was meant to be the light at the end of the tunnel. After enduring more than half a year of political clashes, many a store was hoping just to survive until the Lunar New Year holiday, a massive shopping season, to recoup some of their losses before finally calling the business quits.
Initially, January appeared to be a relatively calm month for the city, building on slight improvements in December. But on the eve of the biggest holiday on the Chinese calendar, the travel lockdown in Hubei province alerted the nation to the severity of the coronavirus. It hit retailers in Hong Kong like a two-by-four.
“We are facing a double-hit devastation,” said Annie Yau Tse, chairwoman of the Hong Kong Retail Management Association, speaking by phone on Tuesday. “The loss we are facing is tremendous. It’s talking about survival.”
Feedback collected by the association showed that in the 10 days between Jan. 24 to Feb 2, its member retailers saw between a 30 to 50 percent drop in sales compared to the same time a year prior.
Spending in jewelry and valuable gifts, cosmetics and personal care, department stores, apparel and footwear suffered especially. Those product categories tallied up a sales decrease of more than 60 percent in the 10 day period, Tse said.
On Tuesday, Hong Kong registered its first coronavirus death of a 39-year-old man, while 17 others are known to be infected in the city. It brings the total confirmed fatalities from the virus to 427 people while more than 20,000 are infected.
New figures released by the Hong Kong government also revealed the full impact of the protests on the city’s retail sales for 2019. Total retail sales for the year decreased 11.1 percent compared with 2018 to 431.2 billion Hong Kong dollars, or $55.52 billion at current exchange. In the month of December, the drop narrowed to 19.4 percent from the 23.7 percent drop seen in November.
While last August, Tse had already called on landlords to offer concessions to tenants to help weather the political crisis, on Tuesday she lobbied again, suggesting landlords collect a percentage of the retailer’s turnover for at least the next six months. Experts have anticipated the virus will not get fully under control until the summer, she said.
While the SARS crisis can offer some insights for the current situation and some analysts are anticipating a fast rebound based on what happened post-SARS, Tse underscored that there are some key differences this time around.
“It’s the amount of rent we are facing compared to the SARS time,” she said. “[During the time of] SARS the rent wasn’t really that high compared to the rent we’re paying right now.”
Two decades ago, Hong Kong was nowhere near as important of a shopping hub as it is today — and its rise as one owes in large part to the SARS crisis. Because Hong Kong’s economy was ailing after the health scare, Beijing devised the individual traveler scheme which relaxed travel limits between Hong Kong and mainland China. In 2003, mainland Chinese from selected cities were allowed to travel to Hong Kong independently of tour groups for the first time, leading to a big boom in spending.
Now with the coronavirus, there is no obvious lever the central Beijing or Hong Kong authorities could pull to remedy the economic impact.
“Even after the epidemic outbreak [subsides], how Hong Kong retailers can revive business is in question so it’s a much worse situation now actually than SARS,” Tse said.
In mainland China itself, the picture is also full of uncertainty.
Late Tuesday, Nike Inc. said it had closed half its stores in China and was seeing slower foot traffic at the doors that remain open. “In the short term, we expect the situation to have a material impact on our operations in Greater China,” the company said, echoing statements made by other brands.
John Donahoe, the new ceo of Nike, said, “Despite this difficult situation, Nike’s long-term opportunity to continue to serve consumers in Greater China with inspiration and innovation remains exceedingly strong.”
One China head of a European label described operating at this time an incredibly complex juggling act, which required continuously “assessing store closures with the complexity of each mall, city, and government regulations while prioritizing the teams’ health and safety.”
The executive, who wished to remain anonymous, said the brand had shuttered 80 percent of its store network spread across 28 Chinese cities, and estimated that sales fell 70 to 90 percent during the extended Chinese New Year holiday.
While China’s most important cities — Beijing and Shanghai — were not put on official lockdown like cities in Hubei province, the country’s morale was too spooked, the source said. Customer traffic and shopping in cities even some distance away from the outbreak were negligible.
“On average, we only saw 10 percent of [normal] sales of a total city on a daily basis,” the executive said.
Like many others, the brand was next bracing for a potential spike in the rate of infections. A significant section of the country returned to work this past Monday, equaling millions of trips taken.
“We’re now taking stronger measures in Beijing and Shanghai due to the anticipated influx of people returning from their hometowns,” the source said.
Companies are also grappling with supply chain challenges.
“The issues are legion, both cross-border and in-country,” said Jeff Unze, president of strategic partnerships at BorderX Lab, a cross-border e-commerce agency which works with brands like Nine West, Alexander Wang, and Yoox. “We typically move goods via air freight and there are two avenues: belly capacity in passenger planes and air cargo.”
“But many passenger flights between China and the U.S. or China and Europe have been canceled due to the coronavirus so belly freight capacity is virtually non-existent,” he said. “Cargo is also way down from China to U.S. due to the virus as well as Chinese New Year, meaning there are [fewer] cargo planes returning that could take our products to China. Costs have increased by 3 to 9 times for some cities due to diminished supply.”
At the same time, internal freight capacity is under pressure.
“All the truckers had returned home for Spring Festival but now many are sheltering in their hometown vs. getting back on the road,” said Unze.