Hong Kong’s total retail sales to grow by 17% in 2023

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It will take 12 to 18 months to recover to pre-pandemic level – PwC forecast

Hong Kong, 22 August 2023 – Influenced by various positive factors, total retail sales in Hong Kong increased by 20.7% in the first half of 2023 compared to the same period last year. With Hong Kong returning to normal and the border re-opening, the number of tourists has been gradually increasing. The government has also distributed consumption vouchers to stimulate the retail sector. The outlook for Hong Kong's consumer market in 2023 is positive, and PwC Hong Kong expects annual retail sales to increase by 17% to HKD408 billion.

Michael Cheng, PwC Asia Pacific, Mainland China and Hong Kong Consumer Markets Leader said, “With Hong Kong and the rest of the world returning to normal and borders re-opening, the number of tourists, especially those from Chinese mainland, coming to Hong Kong has been gradually increasing. The distribution of a total of HKD5,000 consumption vouchers by the government in April and July also helped to stimulate the local retail sector. Despite the strong rebound of Hong Kong retail, with sales of over 20% increase in the first half of 2023, the outlook for the second half seems to be lacklustre as our forecast for the full year is to grow by 17% to HKD408 billion. With many Hong Kong residents adopted revenge travelling behaviour as a result of revival of outbound tourism, this has lowered the local consumption. The distribution of the second instalment of consumption vouchers in July also did not seem to have a big stimulus impact on local spending. Concurrently, the number of tourists coming to Hong Kong has not increased as rapidly as expected, and Mainland Chinese tourists are not replicating the activities that such visitors had prior to the border closures, for instance, they are now looking for deep cultural experiences. The recent weakness of China’s yuan, together with poor performance in real estate and equity market, and the record high youth unemployment rate, Chinese consumers feel the pinch of financial uncertainty, and as such are further undermining consumer confidence and heightening the potential risk of deflation. Tourists will continue to be the key driver of Hong Kong’s retail sales. Campaigns organised by the government and supporting organisations such as ‘World of Winners’ and ‘Happy Hong Kong’, should help drive local consumption and add to the economy. The retail and tourism industries can explore more diverse content, themes and services to enhance the Hong Kong brand and attract more consumers. The government could also try to attract more Southeast Asian tourists, to tap into the region’s growing travel demand, diversify its visitor base and leverage the economic opportunities presented by the emerging middle class in Southeast Asia. We expect that it will take at least 12 to 18 months, assuming no new major issues affect the global economy, to reach the level of retail sales we had prior to the outbreak of COVID-19.”

Michael Cheng continued, “Looking ahead, due to the continuing recovery of Hong Kong's aviation and reception capacity, the number of inbound tourists is expected to increase. By the end of this year, Mainland Chinese tourists should rebound to about 60% of the level before 2019, reaching an expected total of 20-25 million visitors over the year. Further, benefiting from the gradual recovery in tourism and demand related to a propitious year for marriage, we expect that the luxury industry including jewellery, cosmetics, and department stores, will grow by over 40% from last year. The luxury goods market has been recovering rapidly recently, with greater strength, resilience, and flexibility. Luxury brands should be prepared to respond to economic recovery and the emerging opportunities that ensue. Currently, the sector is characterised by youthfulness, high-end features, and personalisation. Brands are committed to attracting young customers through multi-level innovation in products, marketing, and channels. Retailers should utilise big data to enhance logistics and supply chain efficiency and introduce innovative technology such as generative AI to keep pace with the ever-evolving digital era. As an international hub, the Hong Kong government can encourage retailers to step up technology adoption and manpower training by providing subsidies and support while also helping Chinese brands to be promoted globally.

As of June 2023, Hong Kong’s online sales dropped from HK$15.6 billion to HK$14.7 billion, accounting for 7.1% of overall sales, compared with 9.2% in the same period last year and 9.9% of overall sales for the whole of 2022. PwC Hong Kong expects a slight decline in online retail sales in 2023. Online shopping has become a habit for many. Developing both online and offline sales has become an advantage for traditional retailers. Customers can physically experience and purchase goods at physical stores, while opening online stores can also meet the needs of customers who prefer to shop online at home. The synergy between online and offline channels helps create a comprehensive consumer experience and attract a wide range of consumers.

Global Consumer Insights Survey China report 2023

PwC Global Consumer Insights Survey China report 2023 revealed a number of new trends that are reshaping the consumer market and helping brands and retailers navigate the next phase of retail evolution.

China’s economic normalisation also presents a good opportunity for foreign brands to establish a local presence, and for domestic brands to diversify outside of China by leveraging cross-border ecommerce. With greater brand mobility and the eagerness of Chinese consumers to resume their pre-pandemic routines, including in-store shopping and travel, competition is becoming more intense. It revolves around brands’ ability to deliver superior customer experience and manage various points of friction along the purchase journey, both online and offline. 

Among trends that continue to reinforce, Chinese consumers continue to feel the pinch of financial uncertainty, underscored by less than optimistic job prospect, and as such are tightening their belts to rebalance spending across different categories. A majority of surveyed consumers plan to adopt some form of cost-saving behaviour over the next six months. 

Retailers can carve out new paths for achieving sustainable growth and success by unlocking the power of brand story-telling and transcending non-price attributes across borders. Successful approaches may include reducing the price-experience gap to foster brand loyalty and create a path of least resistance that deals with various frictions, while balancing cost and benefits beyond technology hype.

Generative AI

The application of advanced chatbot technology is increasing in consumer markets. When asked which chatbot functions are most appealing, Chinese consumers mention: searching for product information (46%; Global: 44%); personalising offers (40%; Global: 31%); sending alerts and updates about products (39%; Global: 34%); and enhancing customer services and support (30%; Global: 35%). 

James Lee, PwC Hong Kong AI and Emerging Tech Consulting Leader, said: “AI Generated Content (AIGC) opens up new possibilities for consumer brands and retailers to provide highly tailored O2O shopping experience as well as better cost control with more efficient marketing and automated customer service operations. In particular, Generative AI can be applied to assist in real-time customer support, personalised product recommendations in private domain operations, live streaming delivery and creative brand promotions. Interactivity is one of the imaginative aspects of AIGC technology and we have already seen some innovative brand promotion use cases built around combined AI generated text, audio, imaging technology. For example, AIGC makes it possible to create real-time interaction between characters in the video and users, including the creative use of virtual KOCs to sell products via live streaming or an AI-powered virtual DJ services to curate and commentates on a personalised playlist.” 

Foreign brands in China market

In the face of a persistently challenging and complex global economic situation, many overseas brands view entering the China market and establishing an online presence as a crucial outlet for growth. Emerging business models are creating new opportunities for certain industries and categories to explore new avenues of growth. The easing of restrictions on social activities and short-distance travel has fueled growth in categories such as alcoholic beverages, camping, cycling, outdoor activities, and pet-related consumption. In addition, as demand for high-quality health care continues to grow, food and beverages targeted towards health and beauty-conscious consumers have gained in popularity.

Nicole Sun, PwC China M&A Advisory Partner, said: “Although the domestic market continues to open up, it remains challenging for overseas brands to successfully establish themselves in the China market. Firstly, they need to evaluate the current state of the market. Overseas brands seeking to enter the China market have a wide range of options available to them - authorised operation, independent operation and joint venture. Regardless of how overseas brands do it, entering the China market is often a long and intricate process. Brands need to conduct a thorough market assessment so as to gain a deep understanding of the industry environment. They should then combine this knowledge with their brand's existing capability matrix in order to develop a strategy for entering the market. Suitable partners or service agencies should be selected based on marketing or channel requirements, as well as business needs.”
 

Notes to editors 

Download the report: PwC Global Consumer Insights Survey China report 2023