Hong Kong’s total retail sales to grow by 13% in 2023 – PwC forecast

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Hong Kong, 9 February 2023 - 
In 2022, total retail sales in Hong Kong decreased by just below 1%. This was affected by a number of factors. During the fifth wave of COVID-19, the HKSAR Government has imposed the strictest social distancing measures, with more venue closures, ban on gatherings of over 2 people and dine-in services after 6pm. Many people also flew out of Hong Kong for ‘revenge tourism’ as major countries and regions relaxed their travel restrictions from the fourth quarter of 2022. Hong Kong consumers’ purchasing power was also dragged down by poor equity and real estate market performance in most of the year. With borders closures, these factors outweighed the drivers of retail sales, including the distribution of consumption vouchers and the lifting of quarantine requirements for inbound travellers since the second half of 2022.

Despite unfavourable macro factors, including global inflation and rising interest rate, geopolitical and economic uncertainties, PwC’s 26th Global CEO Survey reveals that CEOs in larger Asia Pacific economies are more optimistic about domestic growth than their global peers – 64% of China’s CEOs said they were optimistic, compared to 29% globally. Health and economic policies should promote China’s gradual recovery in the second half of 2023 and into 2024.

The outlook for Hong Kong's consumer markets in 2023 is upbeat, with retail sales forecast to increase by 13% to approximately HK$395 billion.

Michael Cheng, PwC Asia Pacific, Mainland China and Hong Kong Consumer Markets Leader said, “Mainland China lifting quarantine requirements for inbound travellers will cause a rebound in 2023 retail sales. Tourism will begin a slow recovery with estimated 20 million visitors coming to Hong Kong, which is a third of the peak of 65 million in 2018. Retail sales will benefit from the Tourism Board’s recent HK$100 million scheme to lure tourists with promotions and giveaways, including consumption vouchers that can be spent at more than 130 attractions, retailers and dining outlets. Hong Kong will also give away 500,000 air tickets to people from around the world to help reboot tourism. But while the border re-opening will help, the retail sector in Hong Kong will still rely on local consumption in the first few months and it may be difficult to return to the levels seen before the pandemic.”

Michael Cheng continued, “Looking ahead, department stores and the luxury sector, including jewellery, will continue to revive by around 40% in 2023, while clothing, footwear and allied products will grow around 20%, supported by the recovery in tourism and the strengthening RMB. There is pent-up demand for jewellery and gold products, as 2023 is an auspicious year for weddings. They also offer a hedge against inflation and support wealth preservation. Global market is recovering as traveling and socialising have resumed progressively​, and even exceeding the pre-pandemic level​. In 2022, China luxury market growth slowed down, ​however the market is expected to regain with pandemic-enhanced opportunities​. China will have a big growth of luxury market ​increasing online penetration and duty-free market deployment. Luxury market is recovering fast from the pandemic with more strength, resilience and agility, luxury brands should get ready and respond to the recovery and new opportunities. While Hong Kong is still facing challenges, its luxury market will benefit from the global and China recovery and continue to enhance its competitive advantages as a shopping paradise. The city can further become a platform for e-commerce deployment across North Asia.”

PwC’s Mainland China/HK Luxury Market Insights 2023 finds that Hong Kong’s luxury retail landscape has been transformed by three years of border closures. Luxury brands have revisited their store footprints and reduced their presence in Hong Kong. Some brands have shifted their major investment to Mainland China or set up flagship stores exclusively there. Price differentials between Hong Kong and Mainland China are narrowing due to exchange rates and strong e-commerce penetration in the Mainland China. The transformation of Hong Kong’s luxury market is likely to continue, as Mainland China becomes a solid alternative.

On the other hand, as an international financial hub with no sales tax and customs tax, Hong Kong’s luxury sector is uniquely placed to rebound by changing its offering. It should focus more on unique or customised products at the forefront of the latest international trends. It should leverage its cosmopolitan shopping experience to cater to Asia’s high spenders and differentiate itself from Mainland China. The future of luxury retail in Hong Kong will also be tied to the Greater Bay Area (GBA). Some districts of Shenzhen and Guangzhou, and large parts of Guangdong Province, remain underserved in terms of high-end malls and points of sale. Customers living in the GBA are likely to continue to be attracted to Hong Kong as a shopping destination.

Online retail sales in 2022 accounted for 10% of overall retail sales by value – an increase of 21% year-on-year. Over the past three years, Hong Kong’s retail sector has changed significantly as more people have shopped online as a result of the pandemic. Many retailers have increased investment in online sales platforms to improve the overall online shopping experience. PwC Hong Kong expects online retail sales to continue to grow in 2023 but with a slower growth rate. The growth of e-commerce will depend on different factors, including the development of consumer data protection, ethical AI and other key features of a digital economy.

According to Hong Kong Consumer Council’s report Fostering Consumer Trust – Ethical Artificial Intelligence in E-commerce released in September 202290% of the surveyed traders revealed that they adopted tracking technologies in their ways of collecting data and over 86% would collect basic information for transaction, including name, email address, phone number and residential address. However, only 41% mentioned they would anonymise or aggregate the data before using it and 44% specified the cybersecurity measures they took in safeguarding personal data. If retailers are to tap into the growing opportunities of e-commerce, they need to be aware of cyber and privacy risks. Artificial Intelligence (AI) will play a particularly important role in developing customer experience. AI tools such as production recommendation, virtual reality, advanced biometrics and chatbots can enhance customer search, deliver greater personalisation and lead to better purchase decisions. As e-commerce and omnichannel retailers compete to deliver the best experiences, they have also put effort into addressing consumers’ concerns about AI.

Kok Tin Gan, PwC Hong Kong Cybersecurity and Privacy Partner, said, “Retailers can combine consumers’ personal data with AI algorithms to their advantage. This may affect consumers’ product pricing, choices and search results while distorting market competition. The HKSAR Government needs to take action and strengthen the regulation of the e-commerce sector so as to level the playing field and enhance consumers' confidence. AI can strengthen ties with customers, but online retailers also need to protect customers’ personal data, how that data is collected and the use of cookies when shopping online. It is crucial for regulators to ensure that AI models are consistently deployed with transparency and disclosure, which will give the retail industry a big push by enhancing consumers’ confidence and thus further boost the digital economy. All stakeholders in both digital and retail should promote ethical AI in e-commerce and ensure safety, information disclosure and transparency, as well as fairness of data collection and usage.”

 

Notes to editors

Download the report: PwC’s Mainland China/HK Luxury Market Insights 2023

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Mavis Fan

Senior Marketing Consultant, PwC Hong Kong

Tel: +[852] 2289 8497

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