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China refocuses on experience-driven retail to boost profitability amid macro uncertainty
Hong Kong, 26 June 2019 - Uncertainty clouds the outlook for this year’s consumer markets across China and Hong Kong, as PwC’s latest estimate shows that Hong Kong retail sales will shrink 5% for the full year of 2019, while macroeconomic uncertainty has prompted Chinese retailers to refocus on customer experience, according to PwC’s report Back to the core: Reinvigorate experience-driven retail at a time of uncertainty.
“Hong Kong retail sales is estimated to fall by 5% to approximately HKD 460 billion in 2019, as the ongoing Sino-US trade dispute, equity market turbulence and volatility of Renminbi continue to cast a long shadow on consumers sentiment and actual spending”, says Michael Cheng, Asia Pacific and Hong Kong/China Consumer Markets Leader for PwC. The downward revision from PwC’s earliest forecast of a 3% drop reflects a weaker outlook for the second half of the year, due to a combination of factors including external headwinds, economic instability, as well as the projected decrease in tourist arrivals and spending.
Total retail sales for the first four months of 2019 fell by 2%, with electrical and luxury goods among the sectors suffering the biggest decline, against the backdrop of a weak Renminbi and waning consumer confidence. On the back of the completion of major infrastructures such as the Hong Kong–Zhuhai–Macau Bridge and the Guangzhou–Shenzhen–Hong Kong Express Rail Link, mainland tourist arrivals grew steadily in the last quarter in 2018 and hit a record high this January, which was a particular strong month thanks to the Chinese New Year holiday shopping season. However, mainland tourist arrivals started to drop from the peak three months in a row since February.
Cheng says, “Local retail sales and mainland tourist arrivals are expected to continue on a downward trend through the rest of 2019, indicating a slowing consumer market in Hong Kong. Electrical and luxury goods are set to shrink further, while consumer goods like health and beauty products will hold well with a modest growth. The recent political and social unrest, temporary closure of the Peak Tram due to renovations, coupled with a lack of new tourist attractions might lower mainland tourists’ appetite to visit Hong Kong in the short term. Meanwhile, a weakening economy as well as uncertainty surrounding the trade dispute present risks to the outlook in the medium to longer run”.
This year’s tough retail climate underlines the importance for retailers to adapt to changing consumer preferences and spending patterns in order to maintain competitiveness and profitability. As shoppers nowadays have put a bigger focus on consumer experience, more and more retailers are moving to create a more engaging and experience-driven shopping journey with innovative and unconventional retail strategies such as ‘retailtainment’ and ‘coopetition’. Moreover, brands are increasingly tapping the power of emerging technologies like AR and VR to appeal to a new generation of tech-savvy shoppers who value personalised experience.
Back to the core: Reinvigorate experience-driven retail at a time of uncertainty, which builds on the survey findings of PwC’s Global Consumer Insights Survey 2019, also points to an increasing emphasis on customer experience among retailers in China, who are refocusing on business fundamentals such as profitability and cost management in the light of growing economic headwinds.
2019 continues to be challenging year for Chinese retailers amid uncertain outcome of trade negotiation with the US and a slowdown in economy. Retail sales growth fell to a 15-year low at 9% last year, signalling sluggish demand among Chinese consumers. As part of its wider efforts to transition towards a consumption-driven economy, the Chinese government has rolled out a range of stimulus policies including tax cuts, reduction in social insurance costs and incentives for high-tech consumption, with a view to building a more resilient domestic economy to mitigate external risks.
“In the face of a slowing economy and consumer market, retailers are going back to basics by pursuing a more defensive strategy, characterised by profitability focus, consumer-centricity and operational excellence. The story of New Retail continues, as retailers strengthen digitisation along the retail value chain through smart supply chain management enabled by technology and big data, with a laser focus on experience”, says Phil Lai, PwC China Consulting Partner.
Thanks to extensive mobile connectivity and established technology infrastructure, digital-savvy Chinese consumers tend to accept and embrace emerging technologies to a greater extent than their global counterparts. 68% of Chinese consumers surveyed purchase products online at least once a week.
Technology enablement consequently fuels the hunt for new experiences that integrate digital into the offline environment. Close to 40% of Chinese respondents said their in-store experience would be enhanced by the use of technology including IoT scanners, tablet and mobile checkout, and self-service kiosks.
As Chinese shoppers seek to redefine their experience with a frictionless purchase journey and a blend of both physical and digital interactions, retailers are thinking beyond the traditional return on investment (ROI) metrics to adopt a consumer-centred return on experience (ROX) strategy.
Specifically, retailers need to map out their consumers' purchase journey, isolate key customer touch points and factors that drive experiential moments, and invest more in aspects which directly impact those interactions and yield measurable results.
Lai concludes, “From end-to-end digitisation to the rise of experience-based business models, the New Retail evolution in China has come a long way. To thrive in world’s largest consumer market, we see retailers and brands becoming more digitally-agile and data-driven, using new technologies to fuse customer experience across the entire value chain, while monetising discrete moments and building communities with a purpose to ensure long term profitability and sustainability”.