Straight Talk presenter Eugene Chan (left) interviews Michael Cheng, PwC’s consumer markets leader for Asia-Pacific, Chinese mainland and Hong Kong on TVB, Dec 5, 2023. (PROVIDED TO CHINA DAILY)

Michael Cheng, PwC’s consumer markets leader for Asia-Pacific, Chinese mainland and Hong Kong, is on the show this week. Cheng tells us why and how Hong Kong can still be a shoppers' paradise at a time when even people in the city are spending their money across the border in Shenzhen and other cities of the Guangdong-Hong Kong-Macao Greater Bay Area.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Michael Cheng:

Chan: Good evening! This is Straight Talk with Eugene Chan. Our guest this evening is PwC Asia Pacific, Chinese mainland and Hong Kong consumer markets leader Michael Cheng. With over three decades of experience in professional assurance, Cheng is an industry expert when it comes to consumer markets. He is a member of the Hong Kong Retail Management Association's Digital Advisory Panel and has a passion to promote the Hong Kong retail industry. Cheng is a regular speaker on trends in outlook of the Hong Kong retail market. And that is why we have invited him to tell us if Hong Kong is still a shopper's paradise. Welcome, Michael!

Cheng: Thank you, Eugene. It's a great pleasure to be here.

Chan: Thank you for coming. Hong Kong has always been referred to as a shopper's paradise by tourists and shopping in Hong Kong no matter the kind of goods, the price and services, we are used to be world renowned. And we have traditional markets like the alleyways to modern shopping malls, and we sell goods from international brands to local consumer products. But some say that we are losing that name of being a shopping paradise. Do you agree?

Cheng: Well, I certainly would not agree to the extent that we are losing the name as a shopper's paradise all over the world because we are still very much a shopper's paradise. But maybe the lustre as we used to have is not as sharp or big as before. The main reason is because obviously, Hong Kong has always been as you said quite rightly, we have been selling very authentic products and very trust-related products to a lot of consumers all over the world. In particular, if you look at the recent trend of mainland tourists when they come to Hong Kong, they search for some very authentic products in Hong Kong. Apart from what we call the authenticity of the products, price is always something that our consumers are very concerned about and Hong Kong has always been able to offer at least 15 percent to 20 percent discount as compared to the rest of the world. Mainly because Hong Kong has such a good tax system that we don't have VAT, we don't have import duties for some of the luxury goods and some of the imported goods. So, with that kind of difference between the Chinese mainland and the rest of Asia Pacific, we certainly were able to maintain that kind of price differentials. Nevertheless, over the last 10 years with the rising costs of rental, our wages, and also if we look at the real latest issue is the fluctuation of the currency, in particularly we look at the renminbi, they have been really weak as compared to US dollars and obviously Hong Kong dollar because we are pegged to the US dollar. 

Chan: Right, Michael, I mean thank you for saying that, we are still very much a shopper's paradise. But then you did mention that it’s not … the lustre is not as bright as before. So, why do people say that we're losing it? I mean, people usually, especially in the media, sometimes concentrate on maybe a small issue and sometimes it's good for the headlines to sort of bring in large … saying that Hong Kong is losing its paradise, but people on the streets will say that the retail market isn't fantastic at the moment. So, how bad is it, actually, statistically? 

Cheng: Well, statistically, as you said, I don't think it's that bad. To be honest, if you look at Hong Kong retail sales where we had a very robust growth was actually in the year of 2009 to 2014. Where we actually saw since that reopening … when we will allow mainland tourists to come to Hong Kong freely, we start to have that kind of so-called uplift and up to 2009 when we had the financial crisis. After the financial crisis, the central government did really put some real money into the market. And that helped a lot in making a lot of valuable purchases, including paintings, antiques, wines and all these very luxury brands. And that's all the way up to 2013 when we saw the Hong Kong historic high of $498 billion in retail sales in that particular year. And that exactly was something that we were always anticipating Hong Kong was continuing to grow. But unfortunately because the central government did try to bring down corruption or the gifting behaviour starting from 2013, the retail sales in Hong Kong started to decline. And that really hit the luxury sector a lot. And that lasts for at least maybe three years up to 2016. Also if you look back into Hong Kong, we also have the Occupy campaign in those few years. So, that's why we were not doing that well until 2018 when we were able to get back to $480 billion very close to $495 billion, but still a little bit short. That time everyone was so positive that we continued to have that kind of momentum to bypass our historical high. Unfortunately, we had what we call the social incident in 2019, and then followed almost immediately by three years of COVID.

Chan: Right. So, what you're saying is that, in your opinion, in the last 10 years or slightly more, we were having ups and downs due to different reasons. And, of course with the social unrest in 2019, plus the pandemic that doesn't help. So, that's part of the reason for the decline. And if people are going to ask you, what are the main reasons for these decline, apart from the pandemic and the riots, what else would you put to it? 

Cheng: Well, those two reasons are very hard and significant, obviously, because it hit not just Hong Kong, it hit the rest of the world. But if you look at Hong Kong, when we went back to 2018, we were almost on the way getting to another historical high. That is again also because people are feeling much wealthier in terms of the so-called impact of the wealth impact. But since then, because of all these incidents, the equity market is not doing well, the so-called real estate market is also not doing ... not helping us at all and that's really hit retail very directly. But Hong Kong has, that's why I would say Hong Kong has not lost the real advantage of having this kind of so-called price differential, although the price differential has been cut down. Because of the rising costs of rental and also wages, if this price differential keeps coming down, we'll definitely lose our advantage. And then our so-called "shopping paradise" will definitely diminish at that time. 

Chan: So, Michael, from what you were saying, if I made a quick summary, you're saying that with the global factors, with the currency, with the confidence with the people, and now, but the most important of all, is actually the price differential. I mean, we have to be very competitive, so that people will come. So, how can we boost the confidence and spending within Hong Kong? Because like I was at the dinner last night, people are saying to me that there are still travel alerts in the western countries saying coming to Hong Kong is very dangerous because of the National Security Law. So, what can we do? 

Cheng: Well, I think the National Security Law does help to give people confidence about the safety of Hong Kong on the other hand, you know, I would say. 

Chan: I agree with that. 

Cheng: Definitely. I don't think there's anyone who wants to argue on that point. The only thing is whether there's any more so-called best warn incident that would happen even if we have the National Security Law. I don't think so. I still think Hong Kong remains a very safe city right now. And the unrest will probably not happen for a long, long time. But unfortunately, I think if you look at the way the Hong Kong government has been helping the retail sector has not been that so-called robust and we need to have some more innovative programmes to help the retailers, in order to boost ... the consumers are now very different to what we see in the past 10 years. 

Chan: So, Michael, you're not only looking at mainland and Hong Kong, you're always looking at Asia. Have you seen much change in the trends amongst consumer in different parts of the world? 

Cheng: Definitely, definitely. 

Chan: Especially after the COVID?

Cheng: Definitely. I mean, if we look at the market that we are right now in Hong Kong, obviously, mainland tourists has been our main source of income and the consumers. But relatively speaking the Asia Pacific, tourists are now becoming what we call a potential good growth of a batch of people because their wealth is getting better. The economy is doing better in their countries. And that's why you will see a definitely something that we call a real income growth that really comes to Hong Kong to consume, and there are some goods they really want to buy in Hong Kong because they don't have that in their country. 

Chan: Right. So, you're saying that in Asia Pacific is a real market coming up because their wealth is improving? But how about ... another matter I want to ask you is between online and offline shopping? A lot of people do a lot of online shopping now, not going to the shops. Is it helping the retail or not helping the retail? 

Cheng: Well, overall speaking, I still think online is one source of revenue stream for any retailers. It should not be at the stake of what we call the physical store sales. Because if we look at what we call, O2O alright, online to offline, it should be offline to online too. So, it's a two way, it's not one way. So, the best way to do your retail strategy is to make sure your consumers, your customers can come back to shop at your store anytime, whether physically or online.

Chan: So, basically, it is not something that is going to decrease the retails. Right, Michael, let's take a break now and viewers do stay with us. We will be right back.

Michael Cheng, PwC’s consumer markets leader for Asia-Pacific, Chinese mainland and Hong Kong, attends the Straight Talk show on TVB, Dec 5, 2023. (PROVIDED TO CHINA DAILY)

Chan: Thank you for staying with us. We have Michael Cheng on the show this evening, and he has been talking to us about the retail market in Hong Kong, the recent trends and challenges. So, Michael, on the first part, I think a very loud and clear message is that Hong Kong must be keeping the price differential, I mean to be competitive.

Cheng: Yes. Or else whatever you do, isn’t going to be too effective. 

Chan: What key factors will you suggest that might bring to a positive turnaround? Of course, we talked about the currency, we talked about the downturn in economy, we talked about the geopolitical factors, etc. What will turn it around?

Cheng: I think price is obviously one major factor. But if you look at what consumers are looking for, they are looking for good experience of the shopping behaviour. So, obviously, service is of utmost importance. If you remember there's an advertisement by the government from Andy Lau.

Chan: Yes.

Cheng: Why is Hong Kong being so good, it is because we have good service provider. And our store colleagues are able to give the best service to their customers, in terms of the offering, the knowledge about the product, and how to make use of the product. So, I think these kind of service, we should still continue to look for. Hong Kong is still very much on top of it. Although you may see a little bit decline at some times, and people are not feeling that well because the business is not that well. But I think that should be kept at the highest level. In addition, I think in terms of shopping experience, we would like Hong Kong to also offer a little bit more, what we call, deep experience for the tourists in order for they come to Hong Kong. When they come to Hong Kong, they're not just looking for shopping, they're looking for a little bit more additional, okay? Like what we call an experience shopping, how can they improve the way that once they shop, they can also have a little bit of talking points, they can go back to mainland to communicate with their friends.

Chan: Michael, one of our past interviewees, Susheela Rivers, and she shared a comment to me wanting to ask you. She said shopping is about the experience and customer, reinvention of Hong Kong based on the new ways of serving customers with the best products. I'm sure you would agree to that.

Cheng: Of course.

Chan: When you were saying about our experience with the Andy Lau commercial, I think everybody will remember that, Hong Kong will no longer as boorish or we serve very well. But interestingly, if you talk to people that we meet every day, they say the reason why they go to Shenzhen is because, they said that the service is fantastic. So, why are we short when you are saying we have been much better than before?

Cheng: It’s all relative. I think previously when we were in Shenzhen or in the mainland, you will see the experience were not that good. That was back in maybe 5-10 years ago, or even before COVID. But now since COVID, I can tell you that Chinese retailers or store operators are able to understand the issue, that they start to really train up their colleagues in order to make a very good experience to the customers. So, that really helps to minimise the so-called expectation gap between what we used to have and right now. Where on the contrary, in Hong Kong, we are getting less customers, less consumers. So, the way that they are reacting to this kind of business is that means they are a little bit sluggish, they are a little bit less than what we expect. So, I hope that will change back to what we see Hong Kong as always the best service provider in the world.

Chan: I must share an experience. I was in Beijing recently, and one day I was trying to use the taxi app to order a car to a visit. It didn’t work, and a few days when I am back, I got a message saying that they are going pay everybody $10, just for not being work on that particular day. They recognize what they have not done well and they try to compensate.  This is something that in Hong Kong we still have to really pull our socks up.

Cheng: Of course.

Chan: Since you mentioned that, you were a judge of the 2021 and 2023 Smart Retail Tech Awards. So, what technological advancement in Hong Kong has impressed you most in enhancing the so-called retail experience, the experience that we just talked about? Anything that you have seen there?

Cheng: Well, there are some retailers who have really now start to use AI, which would that definitely help because if you look at the technology that we are seeing right now, AI is almost in everyone’s mind. Whether it’s ChatGPT or any form of other way of relating what the consumers expect to see to what they are selling. It is always a help to make sure we can connect consumers to a very large extent. And that is the reason why, I think, globally AI has now been used very widely. So, I would say Hong Kong is starting to use this, and people are able to utilize or innovate our retail system, in order to help promoting these kind of marketing, or any way of conveying messages to their customers. 

Chan: Right. Michael, you know that, I am sure, the government would also have noticed the downturn in general, especially retail market. And they have been trying different initiatives or measure to counteract the negative trends, in the recent policy address, do you see anything that is new coming through?

Cheng: Well, apart from the ‘Night Vibes’ which they have introduced in mid-September this year, I haven't really heard that much of a new campaign yet because I think they are still trying to see the results of this new campaign.

Chan: But how effective has ‘Night Vibes’ been?

Cheng: Well, I have to be a little bit more honest to say that the impact has not been as positive as one would expect. In particular, if you look at the timing. When we introduced this program, it was mid-September, and they were trying to tackle what we call the ‘Golden Week’ in October, when we have most of the mainland tourists coming to Hong Kong. I think in terms of number wise, the number of tourists coming to Hong Kong were not that bad. But in terms of what they spend was not as good as expected. If you look at the October Hong Kong retail sales, we have only reached HK$33.7 billion, which is exactly the same what I expected or projected before the ‘Night Vibes’ campaign came out. So, you can see, I always have a very conservative estimate. And even with the new program, we were not able to bypass what my initial forecast. So, I would still say it takes time and it also needs to be not like a temporary 3 months or 6 months program, it has to be more long term, in order to attract the consumers or tourists to come to Hong Kong to remain more than one day or two days travel. That would actually help to improve the traffic, and then we will see a little bit better results coming on.

Chan: Will you call that still better than doing nothing?

Cheng: Of course, of course. Any campaign introduced by the government will definitely help. I still think it's something that we should do it more proactively and more regularly.

Chan: Yes. But I must say that they have a Food & Dine Festival, which I had the opportunity to attend. I mean the general feeling is good, people are happy.

Cheng: Of course.

Michael Cheng, PwC’s consumer markets leader for Asia-Pacific, Chinese mainland and Hong Kong, talks to Straight Talk presenter Eugene Chan on TVB, Dec 5, 2023. (PROVIDED TO CHINA DAILY)

Chan: But it doesn’t bring up more money?

Cheng: It needs a little bit of time, as I say, and it has to be a little bit more marketed to the public. And then people would start to feel more intention to come to Hong Kong. I mean like the sports event as well, in Hong Kong, it has not been that frequent. Like Rugby 7s, everyone is so fond of going to Hong Kong Stadium to watch this very annual event. But why can't we do it twice a year? I still think, obviously, Hong Kong Stadium has to be moved out to another place, that would take a little bit of time that we will oversee a new stadium. But with more capacity of the new stadium, I am sure that we can hold more events for the foreigners.

Chan: Right. Since you mentioned that, that means any international events, even the LIV Golf Tournament.

Cheng: Of course.

Chan: So, we need as many international events…

Cheng: Of course, concerts as well.

Chan: … to be back on the map. Just a quick question: you mentioned earlier in the first part of the show, you said when the central government do support us more, suddenly you see our tourism, the retailing will go up. So, should all our efforts be concentrating to attract more the mainland customers coming, as compared to the West where they are doing a sort of negative campaign against us?

Cheng: Well, Eugene, as you know, there is always two sides of a coin. And we were back in 2014 to 2016, we had all this so-called people coming to Hong Kong just to do the parallel shopping. And you know this parallel shopping is, to a certain extent, our Hong Kong citizen does not really welcome, right?

Chan: You think things would be changed by now?

Cheng: It has changed a little bit, but I still think the mentality would still have a little bit of the negative impact.

Chan: So, that means the government must be proactive in preparing Hong Kong when the tourists from mainland are coming through?

Cheng: It has to be a bit even. I would say we can treat every tourist as more or less equal. But obviously because of the proximity impact of Hong Kong and the mainland, we may treat GBA as one single region, right? And that is exactly what the government wants us to do. And so if we really treat Hong Kong, Shenzhen, and the rest of GBA cities as really one single family, then we are more or less being equal. And then we won't have that kind of issue that much.

Chan: Right. Michael, what is your outlook for the rest of the world, Asia Pacific? Can there be opportunities that we work together, so that we all win together? Say with Singapore.

Cheng: As you can imagine, globalization has always been a topic, ups and downs. If you look at the recent 10 years’ history, when we used to have globalization, everyone would think this is a great idea because we share the common theme of what people, what citizens want. But unfortunately, lately, because of all these geopolitical issues, you will see deglobalization is somewhat of a trend. So, not until we can find an equilibrium, it is very difficult to say. But I would still say retail is very much of a daily life, you know. Every population within the city needs to consume. So, Asia-Pacific is up and coming economy, Japan is recovering a lot lately, if you look at the latest GDP numbers as well as other things, Japan is a very big economy right now. I will still hope the mainland will continue to do their best, and Hong Kong will be benefitted. 

Chan: Michael, asking you the last question: you know that since our borders opened, we were expecting things to really turn around big. But then we have a lot of Hong Kong people actually visiting Shenzhen a lot, frequently than before. And one headline said “Shenzhen has become a shopping paradise for Hong Kong people”. So what will you say about this Hong Kong trend? And what should we do? Because looks like the price differential over the other side is definitely on the advantage side. What would you say to the people?

Cheng: Well, obviously, the reason why they are going up so regularly is because of the price differential because of the weakness of RMB. But this weakness should not continue forever.

Chan: Right.

Cheng: And we can see, analysts have already changed their forecast that RMB can go back a little bit stronger. With that impact, we will minimize the impact with the price differential between Hong Kong and the mainland. That would definitely remain a lot of Hong Kong people to stay in Hong Kong rather than going out to Shenzhen. Alternatively, as you said earlier, services and the product quality would still continue to be maintained, in order for people to stay behind.

Chan: Right. Simple answer: when do you think the Hong Kong retail market will recover?

Cheng: I would say maybe 12 to 18 months.

Chan: All right, okay. I am afraid that is all the time we have. And thank you, Michael, for this thought provoking discussion on the state of Hong Kong retail market. It is evident that there are many challenges to face, but with innovation and strategy adaptation, there is hope for a resilient and vibrant future.

Allow me to share a quote from Scott Cook, a director of eBay and Procter & Gamble – “instead of focusing on the competition, focus on the customer”. Have a good evening and see you next week!