Pandemic-pummeled retailers in Hong Kong may have yet to see light at the end of the tunnel after two unprecedentedly tough years. But they are biting the bullet and tiding themselves over by making the best use of technology and tapping into the vast Chinese mainland marketplace.
The mainland’s launch of the Individual Visit Scheme in 2003 — allowing residents of the mainland to visit Hong Kong and Macao without a business visa or being part of a group tour — marked a watershed in Hong Kong’s retail business, revolutionizing an industry that has long relied on overseas consumers.
Visitors’ overall spending in the special administrative region from 2009 to 2019 accounted for an average of up to 40 percent of the city’s total retail sales until COVID-19 reared its head. Total tourist arrivals sank 94 percent to 3.6 million last year amid pandemic curbs, business consultancy PwC has noted, citing the Hong Kong Tourism Board.
Although the coronavirus outbreak has eased greatly in Hong Kong since April, imported cases of the highly contagious mutant strains of COVID-19 have resulted in continued stringent travel restrictions. When the city’s border with the mainland can reopen is anybody’s guess.
The recovery in Hong Kong’s retail business is still nowhere near the pre-pandemic 2019 levels, recovering to only 75 percent of 2018 levels, a report by French wealth management and investment group Natixis said. But the sector has made headway, fueled by retailers going online and looking northward for lost ground.
The emerging e-commerce trend in Hong Kong also speeded up the growth of local e-shops. Alibaba Group this year brought the Double 11 shopping spree, the largest online sales event on the mainland, to Hong Kong for the first time with over 5,000 Hong Kong brands participating. Many of the local brands are also using Tmall Global, an import e-commerce platform of Alibaba Group, to reach a wider variety of consumers and expand their customer bases.
The mainland’s dual-circulation development paradigm proposed in the national 14th Five-Year Plan (2021-25) stresses that the domestic market is the mainstay of the economy, while the domestic and overseas markets reinforce each other. Hong Kong plays an important role in the country’s synergistic and complementary development.
The dual-circulation vision presents an innovative development perspective not only for enterprises on the mainland but also in the SAR, offering Hong Kong brands greater scope and opportunities for growth, said Benson Ng, business transformation leader at global professional services group Ernst & Young, or EY.
With the pandemic and the economic recession aggravating the sales slump, prominent Hong Kong retailers are gearing themselves up to embrace the new landscape and preparing to transform their modus operandi by seeking growth in the mainland market via online channels.
Some brands that have been successful in their operations say the key is identifying the market for the younger generation of mainland consumers and to keep innovating products.
Ma Pak Leung — one of Hong Kong’s oldest pharmaceutical companies specializing in traditional Chinese medicine — has made online retailing its revenue mainstream. It entered the mainland market through e-commerce early last year after its chain shops and pharmacies in Hong Kong took a hit from the slump.
The group found favor with mainland consumers, drawing a number of mainland distributors to sell its products after launching an online shop on Tmall Global, said Sunny Chu, marketing and sales manager of Ma Pak Leung.
To embrace the vast mainland market and make its brand more accessible to online customers, Ma Pak Leung has revitalized its image by combining traditional Chinese medicine and healthcare with a youthful dietary supplement model.
Chu said the company still has a long way to go to return to the degree of its offline-sales performance of two years ago when tourists could travel freely to Hong Kong. “However, we’re delighted that our online sales have grown steadily since the e-commerce platform started,” he said.
The nation’s dual-circulation development model has created a powerful domestic market to comprehensively promote consumption and create more room for investments, said Michael Cheng, PwC’s Asia-Pacific, Chinese mainland and Hong Kong consumer markets leader.
The challenge posed by the pandemic has catalyzed the growth of e-commerce in Hong Kong to a certain extent and will present enormous opportunities for digital-ready retailers, he said.
Besides boosting sales, Imperial Patisserie — one of Hong Kong’s leading mooncake brands — intends to bring a quality shopping experience to consumers through its online and offline operations after carrying out research on mainland consumer trends since the company’s inception four years ago.
“E-commerce platforms like Tmall have played an instrumental role in furthering our business on the mainland,” said Allen Huang, director of e-commerce operations at Imperial Patisserie. The company has seen rapid growth rates of more than 300 percent annually since its online shop on Tmall began operating in 2019, he said.
Imperial Patisserie has expanded its business on e-commerce platforms, as well as short-video platforms and live video studios of some key opinion leaders and content platforms like Xiaohongshu, which has been dubbed “China’s answer to Instagram”.
To maintain long-term competitiveness for their brands, retailers need to improve their relationship with customers by having appropriate and relevant customer interfaces in the digital age, while technology will be the key in bringing together the best of the physical and online worlds, Cheng said.
Chinese authorities have said that they aim to boost e-commerce development over the next two decades.
E-commerce transactions are projected to reach 46 trillion yuan ($7.2 trillion) annually by 2025, compared with 37.2 trillion yuan last year. The number of jobs related to the sector is likely to hit 70 million during the same period — up from 60.15 million in 2020.
“E-commerce offers a fantastic opportunity for the long-term development of Hong Kong brands,” said Norma Chu Ka-ying, founder and CEO of DayDayCook, a Hong Kong-based operator of an online cooking-recipes-sharing platform.
The SAR should actively align itself with the nation’s 14th Five-Year Plan by integrating itself into the country’s development and forming a complementary and advantageous resource with the mainland, she said. This will enable enterprises to expand beyond Hong Kong and enter the Guangdong-Hong Kong-Macao Greater Bay Area.
DayDayCook has drawn more than 410,000 followers on Tmall since launching its online flagship store in 2018.
Chu noted that Hong Kong, as a leading international financial hub, has distinct advantages, such as low taxes, a wide variety of — and easy access to — products and services, as well as quality assurance. The mainland’s full-fledged e-commerce ecosystem, including a strong supply chain network, is conducive to the better and faster development of Hong Kong brands.
“The nation’s dual-circulation paradigm requires mainland and Hong Kong brands to focus no longer just on manufacturing, but on the value of the product itself, while China has long been a major manufacturing and exporting country,” said EY’s Ng.
Many cross-border e-commerce platforms help merchants build themselves up on the mainland. Tmall Global, for instance, provides one-to-one services for brands tapping the mainland market, such as logistics, third-party operations-team matching, and market insight.
In regard to testing the mainland market, William Zhao, Tmall Global’s business development director for Asia, said Hong Kong and overseas brands can lower the costs of trial and error through the firm’s Tmall Overseas Fulfilment.
Retailers can place their goods directly with a TOF warehouse in Hong Kong. With Tmall Global’s one-stop support including warehousing, storefront management, logistics and sales and customer service, the TOF allows merchants, especially small and medium-sized enterprises without dedicated operational teams, to sell goods directly to mainland customers.
Hong Kong brands eyeing the mainland market should pay more attention to the fast-changing needs of mainland consumers and the emerging different platforms including live streaming and social media, Zhao said, adding that categories like men’s skincare, fragrance, high-tech beauty devices and pet economy are current hotspots with rapid growth on Tmall.
