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Hong Kong protests: business is not as usual

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Apart from high real estate rental prices, Hong Kong has remained one of the top shopping destinations in the world, due to the lack of import duties and no VAT other than on tobacco and alcohol products.

But since June, protests have spread throughout the city against a proposed extradition bill that would have sent people to face trial in Mainland China. The city-wide unrest has hit retailers and tourist-dependent businesses hard, as mass rallies and clashes between police have taken place in the city’s main retail and tourism areas on weekends. The city’s airport also saw hundreds of flights cancelled in mid-August, with the Airport Express also shut down for one day in September as protesters rallied outside the airport.

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Retail sales plunged by 11.4% in July according to the Hong Kong Retail Management Association (HKRMA) – this was the first full month to register the effects of the protests, marking the steepest drop in more than three years. The staggering situation has seen the HKRMA issuing a statement calling for retail landlords to lower rents for a period of six months to weather the storm. The request has so far gone unheeded, Annie Yau Tse, chairwoman of the Hong Kong Retail Management Association and CEO of Tse Sui Luen Jewellery, told Nikkei, also adding that business decline looks to have been more severe in August than July, with tourist-focused retailers now seeing their sales cut in half.

After three months of protest, Hong Kong’s chief executive, Carrie Lam, announced on September 4 that the extradition bill that first sparked protests will be withdrawn. The move prompted luxury stocks to jump at news that some relief might be on its way, Bloomberg reports. But most of the protesters believed this move was too little and too late. Withdrawing the extradition bill is only one of five demands being made by the leaders of the pro-democracy movement, who want an independent inquiry into the police brutality that has surfaced since the protests began. Even if this did take place, it would take time for the tourists to come back and for spending to pick up.

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However, prior to the protests, Hong Kong’s retail market had already seen a downturn due to the changing buying habits of Mainland Chinese shoppers. China has lowered import tariffs and cracked down on local daigou – agents who buy goods in cheaper foreign markets for buyers in China, while luxury brands have also been working on adjusting geo-pricing for products to be less expensive in China. With Chinese shoppers encouraged to buy more luxury goods at home, Hong Kong and Macau is feeling the pinch, Bain reports in its June 2019 spring luxury update.

But compared to Hong Kong’s free markets, the risks of entering China – its opaqueness, unpredictability and basic problems of market access – are still high. Because of animal testing requirements in China, many cruelty-free beauty brands cannot enter China through traditional import/export channels as well. For fashion and beauty brands sold in Hong Kong that have not yet entered China, online retail and cross-border e-commerce can be seen as a strategic opportunity to reach Chinese consumers moving forward. Luxury department store Lane Crawford has been stepping up its e-commerce capabilities to target Chinese consumers, with added WeChat Pay and Alipay features. Hong Kong’s top beauty retailer Sasa also offers cross-border payments through Alipay and customer service through its account on WeChat.

It is still hard to know what will happen to Hong Kong markets in the long term. Some senior business figures are hoping Hong Kong can muster the same resilience it brought to past crises. “Over the years it has faced a number of difficult circumstances, like the SARS crisis, Occupy Central and the global financial crisis,” José Viñals, chairman at Standard Chartered tells the Financial Times. “And Hong Kong has always survived those crises and come back to what it knows how to do.”

As Hong Kong retailers look to find ways to weather the turmoil in front of them, global brands should also be reconsidering their overall Asia strategy – and how Hong Kong will play a part moving forward.

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