Hong Kong’s total retail sales to grow by 5% in 2024 – PwC forecast

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Hong Kong, 8 February 2024 – PwC Hong Kong has released its Hong Kong Retail Outlook for 2024, presenting a comprehensive analysis that delves into the 2023 performance of the local retail industry in 2023, highlights the challenges and opportunities faced by retailers, and sheds light on what the future holds for 2024.

The retail sector in Hong Kong witnessed a period of recovery in 2023. Total retail sales showed a year-on-year increase of 16%, reaching HK$407 billion. Given the low base in 2022, this rebound in consumer spending was largely driven by a resurgence in tourism after the boundary re-opening between Hong Kong and the Chinese mainland.

The lingering effects of global economic uncertainties, China’s slow economic recovery and the underperformance of Hong Kong’s equity and real estate markets all adversely affected consumers’ purchasing power and resulted in a transformation in shopping habits. As such, there were still challenges in attracting visitors, including appreciation of the Hong Kong dollar against the renminbi, regional competition and changing spending patterns of incoming visitors. Hong Kong residents “tripping north” to Shenzhen and travelling overseas have also become a growing trend that impacted local retail sales.  

In 2023, the three sub-categories with remarkable growth are Luxury (55%); Clothing, footwear and allied products (41%); and Medicines and cosmetics (39%). After a significant retraction during COVID-19, these categories have seen a sharp revival of demand since early 2023, following the resurgence of inbound tourism and return of local consumers to stores as social and economic activities gradually resumed.

Looking ahead to 2024, PwC Hong Kong offers a cautiously optimistic outlook for the retail industry – a year-on-year increase of 5% in total sales, bringing the figure to HK$428 billion. This estimate takes into the account a host of factors such as global economic headwinds, geopolitical tensions and uncertainties in Hong Kong’s equity and real estate markets – the combined effect of which will continue to impact the local economy and consumer market.

Retail sales will recover more noticeably in the second half of 2024 with the expectation that global interest rates would be gradually eased from the second quarter of the year onwards, benefiting equity and real estate market recovery. The possible rebound of the renminbi is also expected to diminish the price differential between the Chinese mainland and Hong Kong. Hong Kong residents’ consumption may shift back to their home market and more Mainland Chinese will come to Hong Kong for travel and shopping as a result.

Since the re-opening of the boundary, warehouse club retail stores in the mainland have become a new shopping hotspot for Hong Kong residents, who are drawn by competitive pricing, a wider range of product choices, better services, and more. However, PwC expects this consumption craze to subside with the price differential narrowing between the two locations amid a stronger renminbi. The resumption of multiple entry permits for Mainland tourists may also encourage more incoming visits and spends in the local retail market.

Michael Cheng, PwC Asia Pacific, Mainland China and Hong Kong Consumer Markets Leader said, “We expect Hong Kong’s local retail to improve, as inbound tourism continues to pick up and Hong Kong residents’ outbound travel rush may recede. To revitalise the local retail sector, the Hong Kong government launched the ‘Hello Hong Kong’ and ‘Night Vibes Hong Kong’ campaigns which included the ‘Day and Night Vibes at 18 Districts’, and initiatives to promote late-night shopping, entertainment and dining experiences for visitors and local residents. While these may have cheered the public’s sentiment in short term, a more sustainable recovery clearly requires more substantive and long-lasting initiatives. To promote a ‘mega-event economy’ and to re-establish the city’s reputation as an events capital, the government should organise more regional financial forums and trade fairs, as well as international sports and cultural events, including art exhibitions, concerts, luxury brand fashion shows and other word-class events in long term.”

PwC forecasts that the substantial growth of retail sales in 2024 will be powered by three sub-categories: Department stores; Medicines and cosmetics; and Luxury sector. Retail sales of the three sub-categories will increase with the imminent launch of Kai Tak Sports Park and The Twins in Kai Tak, which should help transform the district into a large-scale lifestyle retail and leisure location with increased traffic and spending. We encourage the government to improve the transportation network around the Kai Tak area in order to create an easily accessible and multi-functional platform that agilely caters to the evolving needs of tourists. Hong Kong remains an important market for luxury retailers. Two top international luxury brands have chosen Hong Kong to host their fashion shows in 2023 and 2024, further enhancing the city’s reputation as a premier shopping and fashion hub. Luxury still contributes significantly to the growth of Hong Kong retail sales (11%).

In addition, governments globally have different policies and strategies in place to encourage waste reduction and circularity. The Hong Kong government is aligning with this trend by introducing a series of waste management policies. These include, for example, phased ban on one-time use plastic tableware and certain plastic products starting in April 2024 and the anticipated launch of the municipal waste charging scheme in August 2024. Circularity is becoming an integral part of business strategies. Corporates are looking to transform this concept into opportunities. Circular economy aims to minimise waste and pollution while promoting resource reuse and recycling, addressing challenges such as climate change, scarcity of resources and waste overflow. Value creation by transforming “waste” into “treasure” is also core to the principles of circular economy.

PwC Hong Kong Climate and Sustainability Partner Cindy Ngan said: “While the current ESG initiatives may initially impact retailers' operating costs through fees and levies on waste generation, disposal, or collection, those who are forward-thinking would view this as an opportunity to be at the forefront of this transformative movement. Many are exploring alternative packaging materials, developing new business models, and focusing on product innovation that prioritises durability, recyclability, and reusability. By embracing sustainable practices and aligning with evolving consumer values, retailers can not only mitigate the short-term costs but also unlock long-term benefits, including improved operational efficiency, reduced environmental impact, and enhanced brand reputation.”

Michael Cheng concluded, “The retail landscape in Hong Kong is influenced by a range of factors prompting retailers to be proactive. They should demonstrate resilience and adaptability by embracing digitalisation and implementing innovative strategies to enhance the customer experience. The rise of online shopping and generative AI has led even traditional retailers to utilise online platforms for selling their goods and services. Additionally, like many other frontline industries in Hong Kong, the retail sector is experiencing a labour shortage. In order to improve operational efficiency, retailers should consider adopting automation and digitalisation to capture values. Retailers must also adapt their business strategies to changes in consumer preferences, such as the growing demand for eco-friendly products and services. To broaden their customer base, retailers should not only rely on marketing tactics targeting Gen-Z, but also attract middle-aged and silver-haired customers. It is crucial for industry stakeholders to equip themselves with the necessary knowledge and strategies to succeed in this ever-evolving retail environment.”