Hong Kong retail market in need of a breakthrough

As the COVID-19 pandemic subsided, Hong Kong’s retail sector experienced an upheaval since border re-opening, and the market continues to grapple with changes. Amid media stories about the successive closures of shops and restaurants, one may wonder how the city’s retail sector is faring as compared to the pre-pandemic 2018:

Retail sales: After an impressive 16.2% rebound, total retail sales in 2023 reached 83.8% of the 2018 level and 82.2% of the peak in 2013. The top-performing retail category―jewellery, watches and clocks, and valuable gifts, witnessed a remarkable 54.9% y-o-y sales surge last year. Nonetheless, it fell short, achieving only 70.5% of the 2018 level and 50.8% of the peak in 2013.
Restaurant receipts: In a positive turn of events, total restaurant receipts jumped by 26.1% in 2023, bouncing back to approximately 92% of the 2018 level.

As we stepped into 2024, the retail market’s recovery is protracted, primarily due to anaemic consumer spending. In the first quarter, total retail sales fell by 1.3% y-o-y, while restaurant receipts grew by a modest 2.3% y-o-y. According to JLL’s index, retail rentals for High Street shops in the core areas experienced a gradual slowdown over the past three consecutive quarters. It rose by 6.5%, 3.6%, 2.3%, and 1.7% q-o-q, respectively, from Q2 2023 to Q1 2024. This shows a decelerating pace of recovery, which can be attributed to three factors: domestic consumption leakage, slow return of visitors, and visitors’ changing spending patterns.

In 2023, local residents’ spending abroad recovered to 89% of the 2018 level, while non-local residents’ spending in the domestic market only reached 57% of the 2018 level.
Outbound travel rebounded at a faster pace than inbound, worsening the outbound-inbound ratio from 1.5 in 2018 to 2.1 in 2023. This ratio hovered at 2.1 in Q1 2024.
Visitor spending stalled and the contribution of tourist spending to total retail sales dwindled from approximately 38% in 2014 to a mere 18% in 2023. This was accompanied by a transition from traditional shopping to a greater focus on F&B. In 2023, overall inbound visitors spent 18.2% less on shopping and 53.0% more on dining per capita compared to 2018.

The lacklustre spending patterns of local residents and visitors have dampened the recovery of Hong Kong’s retail market. While the government is committed to luring more overnight visitors through a series of mega-events, conventions and exhibitions, additional efforts are required to retain local consumers and entice high-spending travellers through business opportunities. Events such as Rugby 7, Art Basel, and the Clockenflap music festival successfully captivated global attention, highlighting the city’s East-meets-West cultural blend.

Quality, coupled with enhanced creativity and diversity, are important for Hong Kong’s retailers to compete against less pricier peers in the neighbouring Shenzhen and Hainan retail markets. Landlords of existing Prime shopping centers shall find heightened imperative to distinguish their malls from both internal and regional counterparts. By enhancing customer experiences through unique and exceptional offerings, the city is poised to revolutionise the status quo and unlock the bottleneck.

Figure 1: Private consumption expenditure (2016-2023)