Influenced by various positive factors, total retail sales in Hong Kong and the Mainland increased by 20.7% and 8.2% respectively in the first half of 2023 compared to the same period last year. Looking ahead, medium- and long-term forecast for Hong Kong and China's consumer market is positive.
With Hong Kong and the rest of the world returning to normal and borders reopening, the number of tourists coming to Hong Kong, especially those from the Mainland, has been gradually increasing. The distribution of consumption vouchers by the Government in April and July also helped to stimulate the local retail sector. PwC Hong Kong expects annual retail sales to increase by 17% to HK$408 billion. However, it will take at least 12 to 18 months – assuming no new major issues affect the global economy – to reach the level of retail sales prior to the outbreak of Covid-19.
Despite the strong rebound of Hong Kong retail, with sales of over 20% increase in the first half of 2023, the outlook for the second half seems to be lacklustre. With many Hong Kong residents adopting revenge travelling behaviour as a result of revival of outbound tourism, this has affected local consumption. Concurrently, the number of tourists coming to Hong Kong has not increased as rapidly as expected, and Mainland tourists are not replicating the consumption patterns and spending power prior to the border closures. For instance, they are now looking for deep cultural experiences, concerts and sports events.
Tourists will continue to be the key driver of Hong Kong’s retail sales. Campaigns organized by the Government and supporting organizations, such as “World of Winners” and “Happy Hong Kong,” should help drive local consumption and add to the economy. The retail and tourism industries can explore more diverse content, themes and services to enhance the Hong Kong brand and attract more consumers. The Government could also try to attract more Southeast Asian tourists, tap into the region’s growing travel demand, diversify its visitor base and leverage the economic opportunities presented by the region’s emerging middle class.
During the first half of the year, China’s retail market staged a gradual recovery, mainly driven by catering services, luxury, apparel and footwear, with total retail sales of RMB 22.8 trillion. Despite concerns over the strength and duration of economic recovery, the country’s retail sector is largely stable, with final consumption expenditure contributing over 77% of economic growth.
China’s economic normalization also presents a good opportunity for foreign brands to establish a local presence, and for domestic brands to diversify outside of the country by leveraging cross-border ecommerce. With greater brand mobility and of Chinese consumers eager to resume their pre-pandemic routines, including in-store shopping and travel, competition is becoming more intense. It revolves around brands’ ability to deliver superior customer experience and manage various points of friction along the purchase journey.
However, Chinese consumers continue to feel the pinch of financial uncertainty, underscored by less optimistic job prospects. As such, they are tightening their belts to rebalance spending across different categories. According to PwC Global Consumer Insights Survey China report 2023, a majority of surveyed consumers plan to adopt some form of cost-saving behaviour over the next six months.
Online shopping has become a habit for many, with people using platforms such as HKTVmall, price.com, Amazon, Zalora, Taobao or social media. Developing both online and offline sales has become a winning formula for traditional retailers. Customers can physically experience and purchase goods at physical stores, while launching online stores can also meet the needs of customers who prefer to shop from home. As of June 2023, Hong Kong’s online sales dropped from HK$15.6 billion to HK$14.7 billion, accounting for 7.1% of overall sales, compared with 9.2% in the same period last year. On the other hand, as the largest e-commerce market globally, China’s online sales recorded RMB 6.1 trillion during the first half of 2023. Besides Taobao and JD, the top two traditional retail platforms, TikTok and Pinduoduo have also become popular among Chinese consumers.
Looking ahead, as Hong Kong’s aviation sector continues to recover, the number of inbound tourists is expected to increase. By the end of the year, Mainland tourists should rebound to about 60% of the level before 2019, reaching an expected total of 20-25 million visitors over the year. Moreover, benefiting from the gradual recovery in tourism and demand related to a propitious year for marriage, we expect that the luxury industry in Hong Kong – including jewellery, cosmetics and department stores – will grow by over 40% from last year. Luxury spending in China also remains intact despite a lower net increase compared to other categories, with more purpose-led purchases motivated by the feel-good factor and the desire to keep up with trends, and as a store of value or investment.
All in all, retailers can carve out new paths for achieving sustainable growth and success by unlocking the power of brand story-telling and transcending non-price attributes across borders. Successful approaches may include reducing the price-experience gap to foster brand loyalty while balancing cost and benefits beyond technology hype.
Michael Cheng, Mainland China & Hong Kong Consumer Markets Leader, PwC Asia Pacific