Overcoming retail challenges in Hong Kong

By Lawrence Chia

2015 was not an easy year for retailers in Hong Kong. The latest report from the government’s Census and Statistics Department officially proves what most in the industry already knew in their hearts: the sector showed a year-on-year decrease for the second straight year.

Hit by the 'perfect storm' of changing spending patterns and fewer visitors from the mainland, luxury apparel, jewellery, and watch brands were particularly badly hit; while a relatively strong Hong Kong dollar has seen tourists head to destinations with more attractive exchange rates like Japan and Korea.

This 2016, we expect to see another challenging year unfold. Already, Retail Management Association is projecting that retail sales will see a further decline. Exacerbating the situation is the fact that retailers are facing sky-high rental rates and operating costs; and let’s not forget that any further depreciation in the RMB may well cause mainland visitor numbers to drop further.

The industry itself is also facing other, more fundamental challenges. These stem primarily from the sudden and dramatic evolution in consumer behaviour that began in the 2010s. The source of this change? Technology. The speed at which consumers have embraced mobile tech, online purchasing, and social media has taken the retail world by storm – and surprise.

In Europe and North America, seemingly unshakeable retail titans like Macy’s, Marks and Spencer, Sears, and Nordstrom have been scrambling to keep up with the knock-on effects of this 'great online migration'. The situation in Hong Kong is similar, particularly in the clothing and department store sectors.

Reduced performance by large-scale retailers’ bricks and mortar stores has resulted in widespread store closures in busy shopping districts; while the speedy shift to online shopping by a significant portion of their customer base has left the big brands playing catch-up – and sometimes being left in the dust by their smaller, more nimble competitors who employ omni-channel retail strategies to reach their target consumers.

Embracing omni-channel
To stay competitive, retailers can no longer just 'sell what they want to sell'; they need to really understand what their customers want. This applies to specific size and colour specifications. Thanks to mobile technology, people can now be exposed to product information anytime, anywhere.

Crucially, the typical Hong Kong customer can also make a purchase anytime and anywhere. Omni-channel marketing strategies allow retailers to leverage this incredible flexibility and present a unified image and brand promise to consumers across all platforms.

While smaller niche retailers are thriving in this environment, it's easy to understand why large retailers are changing more slowly. Omni-channel strategies can be expensive and difficult to execute, especially when you have legacy IT systems to consider.

There are also infrastructure shifts that may need to occur, and marketing budgets will need to increase. There are complex inventory and delivery logistics to address, as well as policy, procedure, and training updates to perform.

But all this work is worth it. Why? Because omni-channel retailing is the future. Omni-channel makes the physical and online experiences seamless, allowing customers to 'shop at the store and buy online' or vice-versa. It presents to the public a unified look and feel and consistent pricing across every channel – increasing awareness of a single brand identity and deepening trust.

Changing how we approach traditional retail
Even today, some retailers in Hong Kong are still married to old retail traditions, with websites provided as an afterthought – something 'pretty' for people to look at, rather than engage and interact with. Taking an omni-channel approach modernises these traditions, and highlights the fact that online and mobile customer experiences are important touchpoints that can generate sales and help mitigate the challenge of reduced footfall.

With the shift to online, retailers still need to prioritise timely fulfilment – if a customer shops online, they still expect to receive their goods ASAP. Department stores are reducing their footprints – fragmenting into smaller stores and moving to less central locations with cheaper rents, simultaneously reducing costs and becoming more accessible to a broader population, and at the same time being more accessible from different parts of the city.

For omni-channel retailers, these smaller stores are not only physical shops, they are 'reserve and collect' or 'click and collect' sites, where online purchases can be picked up.

Significant changes are required on the payments side as well, with m-commerce and s-commerce platforms gaining steady ground in Hong Kong. While implementing more payment options can create temporary headaches for IT and back office teams, having as many payment options available as possible improves the chances of capturing a sale – just look at the runaway success of Paypal, Alipay, and the soon-to-arrive Apple Pay digital wallet.

To overcome today's many challenges and succeed in this new environment, Hong Kong retailers absolutely have to keep pace with the changing behaviour and shopping preferences of their customers and create a seamless online-to-offline shopping environment for them.

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