Retail Industry

Retail is the 2nd largest sector in the service industry that accounted for 85.7% of Hong Kong's GDP. Total retail sales for the year 2002 amounted to HK$176.9 billion dollars and employs a retail workforce of around 221,000 persons with about 60,207 retail establishments.

Shopping has long been dubbed the "national sport" of Hong Kong. According to a survey by AC Nielsen, Hong Kong peoples' shopping frequency has dropped by 38% to 3.6 times a month since the SARS outbreak. 34% said they have not eat-out and 50% said they have not bought any new clothes. 75% have not purchased any new shoes and fashion accessories. Due to the mysterious nature of the virus, people were paranoid and the usually outgoing Hong Kong people prefer to stay home. The damage done to the retail sector is unprecedented.

SARS' Impact on Retail Industry

The performance of the retail industry is a function of pedestrian traffic. At the peak of the SARS epidemic, pedestrian traffic was brought to a halt. The situation with retail sales could be categorised into three stages:

1. The retail industry took a nosedive on 29th and 30th March 2003 as the Amoy Garden outbreak deteriorated into a disaster with the span of a few days. While Amoy Garden residents were being sent to quarantine camps, retail industry recorded more than 70% drop in both pedestrian traffic and sales almost overnight.
2. Throughout April, the retail industry (except drugstore and supermarkets) experienced a decrease ranging from 20 to 90 per cent against same time last year. Easter Holiday (18-19 April 2003) brought a small rebound in customer flow, there was a 30 to 40 per cent increase in customer traffic but sales was only up by 10 to 15 per cent.
3. In May, things started to rebound but still there was an overall 50 per cent drop compared with May last year. The Mother's Day weekend (10-11 May 2003) boosted restaurant turnovers. As of 11 May, there was a slight improvement on average daily retail sales, the drop was around 30 to 40 per cent instead of 70 to 90 per cent observed in April.

The sales pick-up was primarily by domestic consumption stimulated by promotional campaigns like "We Love Hong Kong" and "Campaign 100" which offered deep discounts and appealed to the psyche of Hong Kong people to do their part in helping the economy. On the other hand, sales from tourists especially those from the mainland (more than 40 per cent of all tourists coming into Hong Kong) remained close to null.

The mainland's decision to scale back this year's Labour Day holidays to only three days resulted in losing the estimated 400,000 visitors to Hong Kong. Last year an estimation of 173,000 mainland visitors came to Hong Kong during the so-called "Golden Week". On average, each of them spent more than HK$5,000 during their stay. This amounted to HK$865 million receipts just from mainland tourists last year. Without tourists coming to Hong Kong, shops in the tourism retail business were the most were the most affected. According to the Hong Kong Tourism Board, the main tourists shopping categories in 2001 and 2002, in order of decreasing spend, were garments, jewellery, leather goods, cameras/optical goods, watches clocks, cosmetics and foodstuff. Tourist's expenditures on garment alone amounted to HK$9 billion a year.

The Hong Kong Retail Management Association (HKRMA) expected as of mid-May that the unfavourable trading environment will prevail for some time before we could see any sign of a turn around and it will take months before consumer confidence will regain its momentum again.

As for the restaurant sector, it is losing an average of HK$300 million a week in sales. Some restaurants took this opportunity to close for "internal refurbishment".

As part of a SARS relief package, the Government introduced a Loan Guarantee Scheme for SARS impacted industries, namely restaurants, travel agents, entertainment and retailing business. However, according to HKRMA, the scheme was not of much help to retailers because most of them are not eligible under the criteria. As of end May, only 272 applications from retail sector were approved, only HK$46 million worth of loans out of the HK$3.5 billion earmarked for the relief package.

Positive Outcomes of the SARS Crisis

Due to the SARS crisis, different business sectors in Hong Kong stand united to combat the adversity. This demonstrated the determination and self-help spirit that helped Hong Kong people weather many crises in the past. Other positive outcomes include:

1. Hygiene awareness has been increased, both on a personal and public level. People are willing to put resources into cleaning the "invisible" places such as air-conditioning ducts and water pipes.
2. The Hong Kong community has become more in concert. Although there are still complaints and criticism toward the Government, people came up with their own initiatives for Hong Kong's revival.
3. People are becoming more actively engaged in the society, many people took part in the "We Love Hong Kong" campaign and the "Campaign 100".
4. People in the management level became more creative in cost-cutting and sales generation. The retail sector had been suffering since the 1997 Asian currency crisis but the list of solutions to ride through crises has not run-out.
5. The awareness of the importance in contingency planning and crisis management is raised.
6. Retailers could take this opportunity to review their business models and implement necessary changes in the key cost categories of rent, stock and labour.
   

Actions

1. Some stores have shortened their business hours, asked employees to take paid or unpaid leave and some even closed their doors temporarily. Others introduced promotional sales, home delivery services and a wider range of merchandise (healthcare related products e.g. face masks and antiseptic products) to stimulate consumer demand.
2. In response to the dire situation faced by the retail industry, HKRMA wrote to various government, private and utilities entities including, the secretary for Health, Welfare and Food for specific hygiene guidelines, utility companies and real estate developers for temporary reduction and deferral of payments.
3. HKRMA to continue the negotiation with landlords urging them to follow the Government's rental relief measures. Rental make up of as much a 50% of a retailer's costs.
4. Re-invigoration of consumption in Hong Kong is key to the recovery. HKRMA had already submitted their suggestions to the Government's "Economic Re-launch Strategy Group" and one of the suggestions was a tax-rebate in the form of consumption coupon. Retailers are anticipating the Government's strategy to take action accordingly.
5. For retailers, life as usual means business as usual. It is important to first re-vitalise domestic spending especially before the World Health Organisation (WHO)'s travel advisory is lifted. The Government should focus on restoring Hong Kong back to a vibrant city and to build consumer confidence. Since WHO lifted the travel advisory on 23rd May 2003, the business has shown signs of recovery as consumers' confidence is boosted. The road to recovery from tourists may come slowly, hence stimulating domestic consumption is as important as re-building Hong Kong's image for tourists.
   

All in all, the industry finds it difficult to forecast for the next few months because things are very much dependent upon the SARS and travel situation. If tourists are coming back, it will be good news not only to travel agents and hotels but also bring a crucial ingredient in the revival of the retail industry. Everyone is now more cautious in making decisions and started planning for good times as well as bad times.

Last Modified Date : Tuesday, January 27, 2004 5:08:38 PM

Sources of information:

1. Interview with Mr. Yu Pang Chun, Chairman, Hong Kong Retail Management Association (HKRMA), 15th May 2003.
2. A Statistical Review of Hong Kong Tourism 2001, Hong Kong Tourism Board, 29th May 2003.
3. South China Morning Post