Hong Kong shops need new strategy versus mainland

They must innovate, improve service or partner with their rivals amidst slumping sales.

Hong Kong’s retail scene is floundering as locals spend their money across the border, and retailers need a new game plan to win, including cross-border partnerships with their mainland counterparts.

“As further integration into the Greater Bay Area is expected, collaborations and cross-border partnerships are necessary and essential,” Prudence Lai, a consultant at Euromonitor International, told Hong Kong Business.

“Cross-border partnerships among business units for businesses operating in both markets are key to providing a unified brand experience,” she added, noting that brands could build trust and loyalty regardless of the channel and location.

Hong Kong’s retail sales have been declining since March as locals go north to border-adjacent areas like Tuen Mun and Yuen Long to shop, whilst the recovery in inbound tourism spending remains slow. 

Retail sales in June fell by 9.7% to $29.9b from a year earlier, according to data from the Census and Statistics Department. First-half sales declined by 6.6%.

Hong Kong residents made more than 1.1 million trips to the rest of China during a three-day holiday ending 1 July.

“The convenience of going northbound via high-speed rail and buses has greatly facilitated Hong Kongers keen to go northbound,” Lai said. “The lower cost of living on the mainland is also a major attraction for Hong Kongers to enjoy services and experiences at a fraction of the cost in Hong Kong.”

Cheaper clothing and grocery prices on the mainland is also driving the trend. Euromonitor's Voice of the Consumer: Lifestyle survey in 2024 showed that 31% of Hong Kong residents were worried about the rising cost of living this year, up from 20% in 2023.

Hong Kongers are also drawn to mainland-exclusive shopping experiences such as Sam's Club and Costco, along with large shopping mall complexes and all-in-one clubhouses.

Shops on the mainland also offer a more engaging retail experience given their big size. Experiential shopping is a thing for 78% of Hong Kongers, compared with the global average of just 58%, Euromonitor said.

Mid-segment businesses in Hong Kong that charge as much as $300 per head have been hit the hardest, after locals discovered premium dining experiences on the mainland at the same prices.

Hong Kong retailers should leverage their unique strengths and improve the shopping experience to win back customers, Kai Tang, head of Adyen’s Hong Kong office, said in an interview.

They can also diversify their products, use personalised marketing campaigns and technology to improve customer service.

Two of 10 Hong Kong retailers plan to expand overseas either by opening brick-and-mortar stores or activating online shopping channels, according to the Adyen Index 2024.

“They are also aware of steps to take in order to maintain competitiveness,” Tang said. “Around 20% plan to increase revenue in 2024 by using technology to improve supply chain visibility, diversifying offerings [and] personalising marketing campaigns.”

Trendy world events
Adyen said Hong Kong Retailers should offer personalised perks such as membership rewards and discounts because 70% of Hong Kong consumers prefer tailored experiences. But this might be a tough nut to crack, with less than 5% of companies saying they know their customers well enough.

“How businesses can deliver on this depends on how they make use of the consumer information they have at their disposal,” Tang said. They can use their purchase history to know what really matters to their customers, he added.

He said understanding consumer behaviour and designing an effective loyalty program require tracking cross-channel sales data. Tang said 73% of Hong Kong retailers that used payment-linked loyalty programs have reported higher sales, whilst 68% of consumers are more likely to shop if their loyalty programs work with their payment cards.

Retailers should also use social media to boost sales. Adyen found that 75% of Hong Kong consumers have shopped on social media, compared with the 44% global average. Hong Kongers make an average of seven purchases a month via social media.

“Social media is a popular platform for product discovery, with 62% of consumers in Hong Kong wanting to buy products after viewing them on social media,” Tang said. Baby Boomers have started to warm up to social media as a sales channel, he said, noting that 45% of people from this age class who bought something on social media were first-time buyers.

Tang said 63% of Hong Kong consumers prefer to shop in stores, and they often order online and pick it up in-store or try a product in-store before ordering it online.

“In practice, this means retailers need a unified backend system consolidating data in different sales channels and a unified inventory, covering brick-and-mortar stores, online shops, and mobile apps,” he said.

“With all payment data feeding into the same system, retailers can deliver a wealth of cross-channel experiences, keep reconciliation simple, and capture rich customer insights,” he added.

Lai said the shift in local consumption to the north is inevitable and would likely continue as Hong Kong further integrates into the Greater Bay Area. Hong Kong retailers can’t compete on price and should focus on brand equity as a key differentiator, she added.

Limited-time offers and novelty services can boost local consumption, as seen with McDonald’s McGriddle launch, which generated $35m in three days. Enhancing the retail experience through collaborations or seasonal themes can also increase foot traffic.

Retailers in Hong Kong are also leveraging trendy world events and popular fandoms like Taylor Swift and K-pop.The trend is expected to drive a shift toward more personalised products and services to meet customer preferences.

‘Ultimately, by embracing innovation, collaboration and customer-centric strategies, Hong Kong can leverage the opportunities presented by this trend to strengthen its retail sector and maintain its position as a vibrant and competitive shopping destination,” Tang said.