the economic slump continue to
take its toll, Hongkong retailers
struggle to survive, reports Launch
Editor Linette Chua.
Struggles and Survival
Hongkong, Asia´s retail
capital, caught the deadly financial
bug in 1997, it left behind an
economy badly-beaten, beleaguered,
weak, and desperate.
days, business confidence at the
Hongkong Special Administrative
Region (SAR) remains at all-time
low. The numbers prove this, GDP
growth is forecasted to shrink
to about 1 percent this year,
unemployment which peaked in 1999
continues to stand at 5.5 percent
and this year's budget deficit
could reach a high of HK$12.8
billion or 7.5 percent of the
date, retail sales, which form
an important part of the consumption
figures that comprise about 60
percent of Hong Kong's GDP, is
still 20 percent below 1997 levels.
still very difficult. We are facing
low sales and deflation, which
has stretched for 36 consecutive
months." Mr. Yu Pang Chun, chairman
of the Hongkong Retailers Management
Association (HKRMA), describes
the dismal state of the local
retail industry to Launch Asia.
spending - weak and fragile
global economic downturn has severely
eroded consumer confidence and
spending in Hongkong continues
to be weak and fragile.
The bust of the local property
market is the deadliest blow suffered
by Hongkong people who have invested
and come to rely heavily on the
real estate boom in the mid-‘90s.
collapse, which had prices tumbling
down as much as 60 percent from
their 1997 highs, has more than
200,000 middle-class families
steep in debt, owing more on their
properties than their real wroth.
And once values of properties
drop, banks often demand higher
interest rates, forcing owners
to make higher monthly payments
on money-losing properties.
their hard-earned wealth on the
property illusion, residents are
forced also to contend with losing
nominal profit margins, companies
had to streamline operations,
resulting to massive layoffs to
bring down labor costs. Companies
like Cathay Pacific, Ottoasia,
and HSBC have opted to relocate
their offices, and back-end operations
to China where costs are much
These have been critical setbacks
to Hongkong people who find themselves
with no job security, decreased
financial wealth, and uncertain
about the future.
retailers - worst hit
perceived wealth has gone down,
local consumers have tightened
their purse strings in anticipation
of worsening times ahead.
prefer to spend money on a rainy
day than spend it now. They wait
for prices to come down to their
comfort level or they will buy
a cheaper product to substitute
for it," Yu, who´s also
the Deputy General Manager for
Yue Hwa Chinese Products Emporium
Ltd, points out. He sees steep
discounting and earlier than usual
sales promotions reappearing this
year as a result of sluggish sales.
who are among the worst hit in
Hongkong, ran after customers
through slashed prices, discounts,
sales promotions, and freebies.
is giving out as much as 50 percent
discounts on their clothes. G2000
and Baleno are promoting their
buy-1-take-1 polo shirts. Park
and Shop and Wellcome are killing
each other with their 'lowest
consumers are no longer satisfied
with a mere 10 percent discount,
forcing retailers to cut prices
by between 20 to 50 percent to
Chan is a bachelor who works in
one of Hongkong´s top banks.
He´s part of the middle-income
group of the region, earns well,
ten years ago, he bought a flat
in suburban Tsing Yi. He waits
for "yellow price tags" in supermarkets
and stocked up on them. Like most
consumers, he compares prices,
canvasses, and chooses the product
with the lesser price.
represents today´s typical
consumer, who is price sensitive,
has low perception of product
differences, shows less customer
loyalty, and accepts reseller
market is tough. We have very
demanding consumers," says Yu.
one side, we have prices coming
down, cutting down on already
very thin retail margins; on the
other side, we have lowering consumer
confidence and costs coming up,"
retailers are getting the flak
from all sides.
are also struggling hard to survive
the high operating costs. Rising
rents is one. In the annual survey
of global retail rents conducted
by global property consultants
Cusham & Wakefield and Healey
& Baker, Hongkong ranks as the
most expensive retail location
in Asia for the third year in
2001. The report indicated that
prime rents in Causeway Bay, which
has one of the most expensive
rents in the Asia Pacific region,
is pegged at HK$400 per sq ft.
And rates are still going up 20
to 30 percent annually, adds Yu,
in Hongkong prime areas.
is the government’s introduction
early last year of the Mandatory
Provident Fund which has put added
pressure on operating costs for
retailers as well as dampening
possibilities for pay rise.
also the growing trend of outward
spending by Hongkong residents.
Latest figures from HKRMA show
that on the average 220,000 Hongkong
people choose to travel through
Lo Wu in Shenzhen to Southern
China to spend their weekends
and holidays. These people are
banking on cheaper shopping, leisure,
and entertainment, especially
in Shenzhen, which are reputed
for its fake branded products.
is estimated that Hongkong people
have spent between HK$18.7 billion
to over HK$30 billion in China
last year. And these expenditures
account for about 15 percent of
Hongkong’s total retail sales
and 3.6 percent of total private
government has tried to help by
building more shopping centers
to stimulate demand but Yu disagrees.
This doesn’t solve the root of
the problem. "This only spreads
out the consumers more. It puts
more stress on the retailers because
they need to open a shop there
to maintain market share. Yet,
it doesn’t necessarily mean double
sales but it is definitely double
economy tough and resilient
a battered economy and a vulnerable
retail market, Yu is still hopeful.
He points out tourist arrivals
were up 15 percent last year compared
to 2000 and 1999 figures and overall
spending was up 9.4 percent although
visitors were spending on the
average HK$252 less.
HK government recognizes the important
role that tourism plays in retail
sales growth and is now engaged
in discussions with China to increase
tourist quota of mainland Chinese
to visit Hongkong.
high-end apparel side is still
very strong. High-end fashion
houses Mango and Moo Gee have
come back to set up shop in the
city, once again, proving Hongkong´s
is always very exciting and very
quick moving," Yu smiles. The
city has a critical mass of human
and financial capital. Although,
China boasts of promising opportunities
and cheap labor; it still lacks
the financial, legal, and technological
structure of Hongkong. Plus the
city has always been known for
its fair and democratic system,
which has endeared itself to businessmen
all over the world.
the end, Yu points out, the greatest
asset and survival skill of Hongkong
lies in its sensitivity and willingness
to change and to move forward.
And everyone is watching what
surprises Hongkong can offer.
Hongkong, low price no longer
greatest asset and survival skill
of Hongkong lies in its sensitivity
to change and willingness to move