SHANGHAI — The writing had appeared on the wall long before the coronavirus did, well before the first angry protester made a stand on Hong Kong’s streets.
In reality, most in the industry going back years knew that a golden era fueled by Mainland Chinese tourist spending would not last in Hong Kong. But it wasn’t until the city witnessed its GDP drop 8.9 percent in the first quarter, the worst on record, and it was facing the prospect of seeing one in four stores disappear this year that it seemed to finally confront a nagging problem. Hong Kong may have once played gatekeeper to a world of style and luxury for 1.4 billion people in Mainland China, but now its edge has considerably dulled.
The city’s heavy exposure to Mainland Chinese tourism was responsible for the skyrocketing of its retail industry over the last decade and a half. Now, that very dynamic has put the city on its back foot. Other major global cities like New York, Paris and London receive their fair share of tourist Chinese shoppers, but they aren’t nearly as propped up by the segment as Hong Kong is.
Because it seemed the city had a never-ending stream of Mainland Chinese tourists coming across the border, Hong Kong never fully caught onto omnichannel. With the outbreak of COVID-19, its shortsightedness has become evident. When Mainland Chinese quarantined at home, they still ordered from the many domestic livestreaming shops online. However, many Hong Kong retailers were left struggling to reach customers without an existing robust online presence.
The political demonstrations, which rattled the city last year and laid bare the deep cultural divide between Hong Kong and Mainland China, could prove even harder to resolve than the pandemic. As virus restrictions eased up, flash mobs gathered in shopping malls this week for another stand-off with police, ending in the arrest of more than 200 protesters.
“We’ve had a bigger impact in particular in Hong Kong because of the double hit…let’s assume ever in [the city’s] history,” said Jonathan Cummings, greater China president for Landor and Fitch. “It’s come in the midst or the end of a period where the retail industry has fundamentally shifted [because of e-commerce].”
“It’s not a case as it might be in other markets of returning to pre-COVID levels and activity. Retail in Hong Kong needs to fundamentally change,” he concluded.
While the image of Hong Kong as a playground for the Mainland Chinese tourist shopper is well engrained, the city really only embraced that role in the last 16 years, a time period bookended by two viruses.
In 2003, Hong Kong was one of the worst-hit locations from the SARS outbreak and the government, looking to resuscitate its ailing economy, thought up the “individual visit scheme.” Beginning that July, Hong Kong allowed travelers from Mainland China to visit the city and Macau on an individual basis — before that, they were restricted to visiting on business visas or group tours.
The policy was immensely successful at increasing tourist numbers. In 2003, the city hosted 16 million visitors. In 2019, despite being impacted in the second half of the year by political protests, Hong Kong took in 65 million tourists, nearly nine times the city’s population.
But the Chinese tourism wave crested in 2013. The Occupy protests sparked the following year and although Mainland Chinese shoppers returned after the months-long demonstrations were cleared off the streets, the caliber of the tourists indicated a marked decline.
Shop floor assistants noticed how they had to work harder for smaller purchases. Instead of coming from first-tier cities like Beijing and Shanghai, more shoppers were coming from less-developed places like Jinan, Changsha and Guiyang.
In 2013, the average overnight tourist to the city spent 8,123 Hong Kong dollars per head, or $1,048, according to the city’s tourism board. By 2019, average spend dropped 20 percent to 6,614 Hong Kong dollars, or $853.
However, what the new set of visitors lacked in wallet size could be made up for in numbers, and many retailers adjusted their merchandising and pricing strategy in kind.
At the same time, there was a significant degree of resentment fomenting among Hong Kong locals as the city’s retail landscape was transformed. They complained how they struggled to buy daily necessities, as cosmetics, baby milk formula, and jewelry stores catering to Mainland Chinese tourists dominated shop fronts. Hennessy Road, a 1.2 mile stretch that traverses Wan Chai and Causeway Bay, counted no fewer than 11 Chow Tai Fook shops in 2013.
There were consumption tax cuts, too, in China, which closed the price gap between buying overseas and within the country. Several major brands, the latest being Mulberry, sensing the inevitable, began harmonizing their prices globally. Mainland Chinese retail had also transformed beyond recognition with its own set of gargantuan, gleaming malls, and often were built by the same Hong Kong developers.
“Now, people just have to accept we’ve already moved onto the next stage,” urged Federico Tan, the founder of the fashion marketing and communications agency Social Capital. “They can’t be so attached to the time between 2003 and 2019. To think it will just come back after this pandemic is just wishful thinking.”
While this could seem daunting, Tan — having witnessed the city through multiple down cycles from the 1997 Asian Financial Crisis to the SARS outbreak in 2003 and the global financial crisis in 2008 — said Hong Kong has proven itself to be resilient.
“What does the future hold? It’s still a city of 7.5 million people, people need to focus on the domestic economy more. They might not consume with the same buying power but they’re still here,” he said.
“Typically, I’d say a large percentage of Hong Kong people would always be traveling, especially during a long weekend. This past long weekend [May Labor holiday] now you have these 7.5 million [people] who have to spend locally. That upper middle class — in the end those people still have a certain amount of budget to spend.”
They are willing to spend, if they can find real value, he insisted. “What I am interested in is the way they’re way more informed now. [Being at home more] they have the time to research — they are researching their bags, their clothes, and the retailers need to be smarter to capture that interest.”
Edith Law, chairwoman of the Fashion Farm Foundation (FFF), a government-backed platform that supports the city’s local fashion industry, said she’s noticed an uptick in interest in local brands.
Part of that can be attributed to the protests, from which a sharp localist movement has emerged, creating consumer boycotts based on political views. But Law said it also has to do with the way COVID-19 has helped consumers slow down and reflect on what they buy.
“They want to appreciate and want to know the philosophy behind each brand,” she said. “They are seeking out Hong Kong-related brands and styles.” To help facilitate that, FFF has organized a series of events — from a pop-up market to fashion presentations for the next 10 days to be held offline, and for the first time, online.
Another shift is toward a more open and collaborative way of working. Designer Cynthia Mak, of the six-year-old knitwear label Cynthia and Xiao, said she’s observed a community-oriented pull that didn’t exist pre-virus.
“We are doing some flash sales. We combined with nine other brands and will bring in all their friends and family we are trying to cross-sell and cross-market,” Mak said. “It’s quite interesting to see this stuff happening. It’s a good thing as well.”
“Usually everyone is focused on themselves, but now everybody is needing other people’s help,” said Mak, sharing that her label planned collaborations this year with a hotel chain, a luxury retailer, and a sustainable supplier.
“A hotel chain didn’t need us before because they can hire a design team or can pay their manufacturers. But now they can’t, it’s something you have to partner up. I give them the design for free, they do manufacturing for free, the hotel will sponsor a location pop-up for free. Everybody is doing their role, bringing one thing together.”
Similarly, Hong Kong-based resort wear designer Marie France Van Damme also decided to rally her circle of business partners and friends. This month the brand launched Curated by MF, an online platform that will sell home, entertaining, and travel goods. The first collaboration features an Israeli interior design brand, and will rotate every two weeks to introduce new labels to her audience.
“In a time of health crisis and economic uncertainty, as small business owners, we have to support one another to weather the current downturn,” said Van Damme.
Still, one hurdle that’s hard for Hong Kong companies to overcome is the lack of an obvious online marketplace, unlike in Mainland China, where brands and retailers can relatively easily set up a shop on a major platform like Alibaba or JD. Even tools like Instagram Shopping are not available for Hong Kong users despite the functionality launching in late 2016 in other markets.
“We have our own web site but it’s hard because it’s all about traffic and brand awareness to bring customers in,” said Mak. “Compared to China, we’re really behind on that. Because of the last two months, people only started shopping for the supermarket and daily goods [online]. Hong Kong people need to move forward toward digital. They’re not used to shopping online or on their phone.”
While recognizing the difficulties of launching online from Hong Kong, Kei Chan, the former head of marketing at Net-a-porter Asia Pacific, encouraged Hong Kong companies to make the investment to build a diversified, digital cross-border business, and not just a China-focused one.
“I came from a retailer able to be based in Hong Kong but faces 30-plus countries in Asia,” said Chan.
Moneyed visitors from the Philippines, Thailand, Singapore and Malaysia have always been fond of coming to Hong Kong to shop, and there’s no reason to believe they wouldn’t transfer those purchases online if a Hong Kong retailer can deliver cross-border, she said. And when travel does begin again, Hong Kong still has its strengths.
“Compared to Korea and Japan, a lot of people speak English and road signs are much more accessible,” she pointed out. “You have to build upon what you have and some of these foundations are not overnight turnkey. Language is one of the things, service level, the caliber of the F&B.”
“I’d want to come and look at the landscape of Hong Kong — not just the concrete jungle but the mountains among the buildings, the hiking, the yachting and boating. It’s super unique to Hong Kong that I feel the tourism board doesn’t talk about this as much, and the history of Hong Kong is interesting,” Chan said.
But overall appeal of the city aside, there is no getting around the fact that retailers themselves have to push boundaries. One step in the right direction, Chan said, was the launch of K11 Musea last year, a property that brought a number of novelties to the city. In April, it opened the first Antonia and Chiara Ferragni stores, and earlier it launched Asia’s first MoMA design store, among others.
With art tours, an interactive membership program, and outdoor spaces designed by the same architect who did New York’s High Line, its goal is to be an incubator for creativity, or the “Silicon Valley of culture,” as the company likes to say.
“It’s a great example of raising the bar and building that future vision and starting to really elevate that retail experience in Hong Kong,” Chan said. “They really thought about the entire 360 experience.”
Cummings also felt that K11 Musea was setting a strong example globally.
“K11 Musea had unfortunate timing to open and it hasn’t properly gotten the credit as a mall for doing something different because it opened during the protests and then COVID-19 hit,” he said. “In the past, Hong Kong was about access to products or about pricing but those areas as potential differentiators are gone because of digital platforms. It becomes more about the retail experience.”
“When you’ve got low economic growth or if the size of the overall market isn’t growing, for you to grow, you’ve got to take the market share of somebody else,”he added. “That’s what Hong Kong retailers need to learn. They haven’t had to do that for the last 16 years.”