Self-reliant local retail | Chung Sau-ha

Self reliant local retail Chung Sau ha

In the last article, I talked about the challenges that traditional Hong Kong stocks have been facing in recent years. What about the local economy in Hong Kong? In this article, I’ll briefly share the situation of the retail market.

In the past decade or so, the retail market in Hong Kong has gradually been dominated by mainland consumers. From cosmetics, jewelry, pharmacies, to hotels, all these industries have benefited from this surge. However, a once-in-a-century epidemic almost wiped out this advantage. Although Hong Kong’s epidemic is basically under control, the epidemic situation in many places of the world is still severe. Therefore as Hong Kong’s epidemic prevention and quarantine measures have not yet been lifted, according to the data of the Hong Kong Tourism Board, the number of visitors to Hong Kong has plummeted by 99.9% year-on-year as of January this year. The retail industry is naturally bearing the brunt.

Nowadays, we can only rely on ourselves and focus on serving local customers. However, due to the anti-epidemic measures such as gathering bans, the income of industries such as dining, entertainment, and retail have been affected as well. However, I believe that local retail has already passed the most difficult time. At the moment, traveling abroad is almost impossible, therefore the only outlet for spending is in Hong Kong. Luckily, Hongkongers have accumulated a certain amount of wealth in the past years, so the foundation was good. With decent purchasing power, many restaurants or shopping malls are still crowded on weekends, and therefore according to some performance announcements from certain listed retail companies, there have been healthy rebounds, although we are still far from retrieving past prosperity.

Not only is the decrease of mainland Chinese tourists a huge blow to the retail industry, but there is also the threat from online shopping platforms. Both of these are obvious factors, but aside from the two, another that is often neglected is the fast-paced, transparent market that allows for information circulation. Consumers have a high level of awareness of various products and getting a reasonable price range from simply asking around or looking online. In other words, the competition in the retail industry is huge, adding a layer of difficulty to profitable growth. On the whole, I still remain positive towards the local retail industry.

What about the retail industry in the mainland? According to the data from the Ministry of Culture and Tourism of China, the total number of domestic tourists on the first day of the Labor Day Golden Week reached 23.197 million, with revenue reaching approximately CN$9.77 billion (US$1.5 billion). Hotel booking through online platforms did well, and there is a consensus in the industry to forgo the much too low base of 2020, and compare the data directly with that of 2019. Compared with the year-on-year figures in 2019, the revenue decline of many mainland retail companies in the first quarter of this year has narrowed significantly. It is believed that when the second quarter is reached, there is hope to surpass that of even 2019.

(Chung Sau Ha is a senior portfolio manager with Allianz Global Investors.)

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