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the bulletin


High costs crippling retailers

High rental costs, weak sales and deflation are stifling Hong Kong's retail industry which has seen its sales value plunge 25 per cent since 1997, according to Hong Kong Retail Management Association Chairman Yu Pang-chun.

Despite signs that the territory is emerging from the Asian financial crisis, retailers remain cautious in all aspects of their operations as consumer spending is still fragile.

"Given the high cost structure of our industry, in particular areas of retail rentals and labour costs, keeping operational costs low as well as in sustaining business growth will continue to be a challenge for all retailers," Mr Yu said.

Adding to retailers woes are landlords' intentions of asking for double-digit increases this year on retail rentals. Mr Yu said the HKRMA believes that retail rental levels are still too high to make Hong Kong competitive and given the current market conditions, now is certainly not the time for an upward movement in retail rents.

He pointed out that there has been a steady growth in retail space vacancy and that it is predicted to stay at 10 per cent in the next two to three years. There has also been a growth of 19 per cent in total retail footage over the past five years.

"Landlords must therefore be realistic in helping retailers recover from the recession and achieve a win-win situation between both parties," Mr Yu said.

High operating costs are also deterring local retailers from expanding their businesses as well as scaring off some overseas investors.

"We have seen a lot of worldwide international brands opening up stores in neighbouring countries but bypassing Hong Kong," he said. "We have also seen prominent international retailers and quality department stores exit Hong Kong's retail market due to high retail rentals and operating costs -- for example, Carrefour, Daimaru, Matsuzakaya, Isetan ... ."

With the trading environment still struggling to get back up to full steam, the association is projecting a flat growth for the Christmas and new year period, and a 1-2 per cent growth in total retail sales value for next year.