Ebb and Flow in Asia’s Retail Markets

Hong Kong

For the first time in 20 years, the SAR’s retail landscape is trending down and has turned into a tenants’ market.

Responsibility for Hong Kong’s temporary misfortune can be laid at the feet of the one-two punch of the ongoing Sino-US trade war — which takes a step back for every apparent step forward — and the well-documented local unrest. Across the board, local shopping centres continue are proving resilient, established brands and mid-market basic needs products in residential neighbourhoods are performing well among local consumers and in border districts, and F&B remains a high point. One need only look at the crowds in the new Yata supermarket in North Point.

High street shops, however, are another story. Rents are down over 50% from 2014 peaks, and falling. That said, Hong Kong’s optics can muddle the data. Yes, the unrest does little to help consumer sentiment and overall retail sales, but high costs mean the time of the massive flagship store has likely passed. Brands that have established their presence, from H&M to Prada, are moving to smaller, more cost-effective boutiques in malls — a process that predates the protests by three years in some cases. Combined with omni-channel shopping the retail sector was primed for a correction. Nonetheless, Chinese brands are looking outwards, starting with Hong Kong, and all brands understand they can’t afford not to be in Hong Kong. Recovery will be slow, but it will come eventually.

Singapore

On the other side of the coin, Singapore is holding steady, despite the fact the city runs on trade and the same trade war impacting Hong Kong is making itself known in the Lion City. Singapore is among APAC’s most competitive markets, and it too relies heavily on mainland tourists to buoy its retail sector. With tourist receipts and domestic spending both moderating — Singapore is home to some of Asia’s most price sensitive consumers — retail sales have dropped for seven consecutive months as of November. At the same time, landlords struggled to fill new malls, and former stalwarts along Orchard Road fall out of favour. In a familiar trend, F&B remains a growth area, and suburban district malls are performing best by holding steady on rents. Finally, Singapore is also embracing new concepts, like the dining and hydroponic farm in an old Giant store at VivoCity, and the activity-based Decathlon moving into swish Centrepoint on Orchard in an effort to reenergise consumers, perhaps led by the eye-catching Jewel Changi Airport, gaining traction as a must-see for its indoor gardens, waterfall and recreation.

Macau

As of November, the region’s brightest lights were coming from Mainland China and Macau. As long as gaming receipts are the bread-and-butter of Macau’s local economy, it will keep the other SAR dependent on Chinese tourism. Macau is in the midst of another minor boom cycle, with luxury, fast fashion, watch and jewellery sales performing well regardless of a weakened Yuan, again a result of the trade war. Total arrivals (up 17.7%) and hotel volumes (1.7%) either increased or went unchanged as of the third quarter.

At the brand level, unrest in Hong Kong is refocusing attention for diversification, with many existing players planning expansion and new players entering Macau. New and forthcoming infrastructure has proven (or will) invaluable vis-à-vis tourist arrivals. A rail connection to Zhuhai scheduled to open in 2020, the LRT finally opening on Cotai, Hengqin Island’s planned development as a financial centre and a rash of new hotels and expansions (Andaz, Studio City, the Londoner) are positioning Macau for healthy growth in the immediate future.

Mainland China

It comes as no surprise that the regional standout is Mainland China, one of the few markets experiencing a retail surge, largely rooted in e-commerce. Luxury sales are up as much as 8% in first tier cities. A weak RMB that favours shopping at home is underpinning China’s domestic consumption, but lower import duties and a 3% drop in VAT certainly help. Global brands are finding initial capital expenditure in China a more efficient use of funds.

With a projected 12% growth in luxury goods sales for 2019, price harmonisation, and an expanding e-commerce sector make China the place to be for major brands — even as future success hinges on reconciling bricks-and-mortar service with social media.