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News Release

HONG KONG

Reimagining Hong Kong’s Traditional Bricks and Mortar Retailing

Retailers and landlords brace for e-commerce disruption


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Consumers everywhere now have the flexibility to purchase most types of goods via traditional bricks-and-mortar stores or online channels. Although worldwide adoption of e-commerce is rising rapidly, it's only recently that landlords and retailers in Hong Kong have had to re-evaluate their strategies to meet these changing market dynamics.

Online Disruption: Smaller stores in the crosshairs

Hong Kong has all the ingredients for a thriving e-commerce scene, with consumer spending amongst the highest in the region, and a robust mobile and payment infrastructure. However, as it turns out, Hong Kong consumers are spending less online as a proportion of total retail sales compared to their counterparts in other major world cities.

Although most retailers in Hong Kong have yet to experience e-commerce's bite, the lower-end of the market is one segment being squeezed by rising competition, with the likes of Taobao competing directly with traditional 'mom and pop' shops and smaller shopping centers built around subdivided shops.

The Profitability Myth of Online Retailing

With high retail rents, you wouldn't be alone in thinking that e-commerce presents a more profitable alternative to operating a physical store in Hong Kong, however, our latest whitepaper Reimagining Retail: Bricks, mortar, and the evolution of e-commerce in Hong Kong reveals otherwise, with shipping costs and high return rates being the Achilles' heel for online retailers. 

"The majority of online retailers provide free returns to remain competitive," says Denis Ma, Head of Hong Kong Research at JLL. "As a result, savings on rental and labor costs are often marginalized."

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Adapting to the changing retail ecosystem

The retailers and landlords we surveyed foresee e-commerce playing an important role in the city's retail sector over the next five years.

According to Ma, the future of Hong Kong's retail market lies in its evolution to omni-channel retailing, which allows consumer preferences to be shared across all retail platforms and formats—mobile, social media, physical and online stores, and search engines.

As new technologies emerge and more consumer data becomes available, retailers and operators will seek to better understand their customers to deliver personalized solutions that improve their bottom lines.

"Experiential Retail": Putting consumers' experience first

The price gap between e-commerce and physical stores is often cited by shoppers as the reason they choose to buy online, but bricks and mortar retailers and landlords are trying everything from personalized products and mobile payment options, to in-store value added services to maintain the relevance of high streets and malls.

Technology is one way traditional retailers are implementing this customer-centric retail experience. Take Farfetch's "store of the future" concept in London. Sensors within the store track shoppers' movements and automatically populate a wish-list on their phones using RFID and ultrasound technologies. Shoppers can even create and view custom designs through interactive holographic displays, and utilize digital mirrors in its fitting rooms. 

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Time to move into bricks and mortar

Despite the rising need to invest in technology, James Assersohn, a Director on JLL's Asia Pacific Retail team, doesn't think e-commerce will spell the end for bricks and mortar stores. "An online presence is important for any retailer, but e-commerce doesn't replace the shopping experience and enjoyment provided by physical stores," he explains. 

Tourist arrivals and retail sales were up 8.9% and 11.4% year-on-year in March 2018 respectively, according to government statistics. At the same time, the cost of opening a physical store in Hong Kong has dropped significantly following a three-year downswing in the city's retail market.

Eric Cheng, a Director in JLL Hong Kong's Retail Department, is bullish about the outlook: "Physical stores will be in more demand than ever."

A window of opportunity for retailers is now open, he says, but not for long. "The inbound tourism market has started to pick-up. Another boost to the sector will take place with the opening of the Hong Kong-Zhuhai-Macao Bridge. "Online retailers are looking to expand into bricks and mortar should act now."

Download your copy of our latest research paper here. For more information, contact Denis Ma , Head of Research, Hong Kong.