Hong Kong's retail market to shrink 2.5% in 2020: PwC

Amidst uncertainties, China’s stimulus policies and Sino-US trade negotiations could provide some relief.

2020 will likely continue to be a challenging year for the consumer market, as Hong Kong’s retail sales are expected to eclipse by approximately 2.5% to $420b (US$54.01b) whilst uncertainty weighs on consumer and business confidence, said PwC.

Total retail sales for the first 11 months of 2019 plummeted over 10% to $395b. October posted a 24.3% decrease, the largest monthly decline on record against tthe 20.6% fall in February 2016 during the retail market downturn, and almost 10 points ahead of the 15.2% drop recorded in April 2003 during the SARS outbreak.

PwC estimates that total retail sales for 2019 will likely drop 11% to $431b. 

Tourist arrivals also fell by 10% in the first 11 months to 52.72 million, with November recording a 56% drop, marking the biggest slump for the same period since 2003.

Michael Cheng, Asia Pacific, Mainland China and Hong Kong Consumer Markets Leader for PwC, said, “Looking ahead to 2020, PwC expects a continuous tough outlook for Hong Kong's retail market, as a great deal of uncertainty looms over the near future. Based on our preliminary forecast, Hong Kong’s retail sales will record a 2.5% drop to $420b in 2020, subject to downside risks such as China’s economic slowdown and volatility in global markets against the backdrop of the upcoming US election,” commented Market Cheng, Asia Pacific, Mainland China and Hong Kong consumer markets leader for PwC.

But China’s stimulus policy may help stabilise the equity market, whilst the gradual restoration of social stability locally, as well as smooth progress of the Sino-US trade negotiations will help support the slow recovery of the consumer market in Hong Kong, noted Cheng.

Further, PwC expects gold and jewellery products to see an increase in demand during the upcoming Chinese New Year period, as the Year of the Rat represents good timing for marriage according to Chinese traditions. The slump in the luxury market is likely to have already bottomed out in 2019, with estimated annual sales totalling $65b, the worst since 2010.

Sales of electrical goods are also forecasted to improve this year, thanks to the roll-out of 5G services in Mainland China and the expected release of 5G mobile phones, added PwC.

In contrast, cosmetics and department stores are likely to remain lackluster as Mainland Chinese tourists remain scant.

“With the increasing popularity and advancement of online retail in both Hong Kong and Mainland China, retailers can stay ahead by embracing the O2O model under the New Retail era, increasing their connectivity with customers, as well as expanding their sales channels across the region, in particular, Mainland China. Retailers should also refocus on enhancing operational efficiency, as well as continuing to drive digital transformation to stay resilient in the long run,” said Cheng.

Amidst the subdued retail environment, the HKSAR Government has announced a range of relief measures to support small and medium enterprises (SMEs) in this year’s difficult economic environment. These include waiver of government levies, rent reductions for government land, enhancements to government funding schemes to better support enterprises in exploring business opportunities and promoting sales, conditional waiver of surcharges for tax instalment settlement, amongst others.

But beyond these , PwC Hong Kong Tax Services Partner Sophia Chan encouraged new tax incentives to help maintain Hong Kong’s attractiveness in the region.

“Whilst these [relief] measures could help ease the immediate financial burden on SMEs in the short term, the HKSAR Government is encouraged to consider introducing new tax incentive such as concessionary tax regime to regional headquarters and enhancing some existing tax incentives to maintain Hong Kong’s attractiveness for Mainland Chinese and foreign investments and stay competitive in the region in the long run,” she said.

The increase in disposable income among consumers brought by the State’s measures to reduce taxes and levies, as well as new policies to promote economic development and consumption will provide impetus to the retail and consumer sector in Mainland China. In the coming year, we expect domestic consumption to keep growing steadily and be more diversified, supported by stimulus policy, digital transformation and consumption upgrade”.

Domestic consumption is projected to steadily grow and become more diversified on the back of fiscal policies to reduce taxes and levies for enterprises and individuals, said PwC China Tax and Business Advisory Partner Rebecca Wong. These measures totalled over $1.46t (RMB1.3t) in 2018 and nearly $2.2t (RMB2t) in 2019. 

Photo courtesy of Wikimedia Commons.