PwC forecasts a 6% decline for Hong Kong's retail sales in 2024 and an improvement in early 2025
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Hong Kong, 17 October 2024 – Today PwC Hong Kong released a forecast highlighting the ongoing challenges Hong Kong's retail sector is facing in 2024. Despite efforts to rejuvenate the industry, total retail sales value has witnessed a 8% decline from January to August in 2024 compared to the previous year.
For the first eight months in 2024, three sub-categories saw declines amid the change of consumption patterns: luxury sector (16%), department stores (16%), and electrical goods and other consumer durable goods (15%); while medicines and cosmetics increased 7%. Looking ahead, medicines and cosmetics is the only sub-category forecasted to experience growth (11%) in 2024.
Global economic uncertainties, geopolitical tensions, and underperformance in Hong Kong's equity and real estate markets have collectively contributed to the adverse impact on the local economy and consumer market. The US Federal Reserve lowered their interest rate by 0.5 percent in September, which came later than the market expected. Factors such as changes of consumption patterns, strong Hong Kong dollar, as well as reduced demand due to outbound travel and cross-border shopping in Shenzhen are accelerating local retail’s downward trend.
Michael WY Cheng, PwC Mainland China and Hong Kong Consumer Markets Leader said: “Amid a confluence of factors including the transformation of consumption patterns of Chinese visitors turning to experiential and cultural consumption, as well as the impact of continued strength of US Dollar and hence Hong Kong Dollar against other currencies in the region including the Japanese Yen, Hong Kong retail sales have been severely impacted for the first eight months of 2024. Increased outbound travel by residents, and people heading to Shenzhen also led to weak consumption in Hong Kong. Nevertheless, with China’s recent consumption downgrade under the unprecedented economic impacts, wide-ranging stimulus measures intended to stimulate consumption and revive capital markets by the Central Government will aid consumers and boost the purchasing power of Chinese consumers benefiting from the wealth effect, together with various measures introduced by the Central Government with the objective to invigorate market sentiment earlier this year. PwC expects a gradual improvement of the retail sector from the fourth quarter onwards and predicts a 6% decline in total retail sales, amounting to HKD383 billion in 2024.
Over the past few years, the cost of operating a retail business has been exceptionally high in Hong Kong compared with other markets. The HKSAR government should offer subsidies to help retailers overcome the challenges. Lower operation costs will enhance the competitiveness of local retail. Rent reduction for shops in the city amid sluggish sales would be a necessary step to support the industry and improve the business environment.”
In the Policy Address 2024, the HKSAR Government's initiatives to support small and medium-sized enterprises in the retail sector through programs like the Digital Transformation Support Pilot Programme and E-commerce Easy, under the BUD Fund, are aimed at accelerating digital transformation and facilitating market entry into the Chinese Mainland through electronic commerce business initiatives. By embracing digital transformation and adapting strategies to meet evolving consumer preferences, Hong Kong is well positioned to successfully meet these challenges. This year, various Mainland Chinese e-commerce platforms plan to launch industry-first, exclusive services on 2024 Double 11, and have tacitly advanced the commencement time. This will be the longest online shopping festival in history. With a range of subsidies and extensive discounts offered, the event promises to be a tremendous success to ramp up sales volumes.
The luxury retail sector in the Chinese Mainland and Hong Kong is currently experiencing signs of consolidation, with subdued demand indicating a slowdown in consumer spending. This has raised concerns among luxury retailers, as China has been a growth engine for the luxury industry. Chinese consumers, who were known for paying for high-end items like bags, watches and jewellery, are now cutting back due to economic challenges. The decrease in spending by Chinese customers is exacerbating the overall slowdown in luxury goods sales globally. Concurrently, Chinese travellers are flocking to Japan to take advantage of the weak yen to buy high-priced products, adding pressure to local sales in China. Luxury brands are cautious due to uncertainties stemming from the global economic landscape. Factors like inflation and high interest rates are putting pressure on consumers, particularly those seeking status symbols. Further, the price of gold hovering at an all-time high - affected by the macroeconomic environment – is impacting demand for gold jewellery. As the business environment in the luxury goods industry has become more challenging than expected, luxury brands are taking decisive actions, including cost transformation, and recalibrating strategies to reconnect with core customers. Such steps are expected to support luxury brands’ performance in 2025 and beyond.
Rebecca Wong, PwC South China Tax Markets Leader, said, “China is expected to become the world's largest luxury market by 2030. Favourable treatments for tax-exempt consumption and reduction in import taxes, including departure tax refund for overseas travellers, Hainan duty-free shops, city duty-free shops in designated cities and cross-border B2C import, will boost inbound tourism and domestic consumption in China. PwC foresees Hainan Free Trade Port will integrate into the global network of high-standard free trade zones where tariff will be exempted for all goods and a simpler tax system will be adopted by the end of 2025. Besides, certain cities of the Greater Bay Area also encourage advanced supply chain management, design and branding businesses by providing tax incentives and talent subsidies. Hong Kong retailers should make use of these new policies to explore new markets, new products and new business models; and bring in our international retail expertise to penetrate to the Mainland Chinese market.”
PwC’s Voice of the Consumer Survey 2024 - China report
Many brands and retailers in China found themselves navigating a challenging landscape marked by slow consumer market growth and heightened competition. Major shopping festivals, which would traditionally drive substantial sales, have seen lacklustre performance recently. Additionally, the shift towards value-conscious purchasing has diluted the impact of peak sales events. The broader economic landscape is marked by an uneven recovery, with robust industrial production contrasting with tepid consumer demand.
Despite these challenges, the long-term prospects for China's retail sector remain promising. Continued urbanisation and rising income levels are expected to drive sustainable consumption growth in the medium-to long-term. As market confidence improves, the growing number of upper-middle and high-income households – the backbone of the consumer market – are expected to translate their high savings into increased spending. Moreover, the Chinese government's push for green and healthy consumption, along with the rapid expansion of e-commerce and digital marketplaces, presents new opportunities for growth and innovation.
One of the most notable trends in the Chinese consumer market is the rapid evolution of new consumption scenarios and patterns. Driven by advancements in information technology, various business models and consumption scenarios have emerged, catering to diverse themes and geographical spaces. For instance, the popularity of city walks, domestic tourism, immersive exploration of urban landscapes, and the rise of home-grown brands, reflect a shift towards experiential and culturally enriched consumption. In tandem, the sports economy has thrived amidst the Olympic Year, with increased public health awareness driving the demand for outdoor sports equipment and related products.
On the digital front, the Chinese consumer market is witnessing a transformative wave driven by the rapid adoption of Generative AI (GenAI). This technology is a revolutionary force reshaping how businesses interact with consumers, manage operations, and deliver personalised experiences. The willingness of Chinese consumers to embrace and invest in AI technologies presents a unique opportunity for brands to innovate and differentiate themselves.
Michael YH Cheng, Workforce Lead Partner of PwC Hong Kong, said: “The retail market is currently facing a significant talent shortage, a challenge that has become particularly acute in certain sectors. For example, Hong Kong’s food and beverage industry has been grappling with a severe labour shortage, with many restaurants struggling to find qualified staff to fill key positions. As retailers increasingly adopt AI technologies to enhance operations and customer experiences, they encounter a dual challenge: the need for skilled workers who can effectively leverage these technologies and the imperative to maintain human elements in service delivery. While AI can streamline processes and improve efficiency, it cannot fully replace the nuanced understanding and emotional intelligence that human employees bring to customer interactions. Therefore, the integration of AI alongside human capabilities is essential not only for addressing the talent shortage but also for fostering a more resilient workforce.”
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Download the report: https://www.pwccn.com/en/retail-and-consumer/voice-of-consumers-china-report-oct2024.pdf
