Hong Kong retail sector struggles to recover post-pandemic period

Hong Kong’s retail sector has faced a severe downturn since the pandemic, with experts predicting a prolonged period before a recovery is seen, CNBC reports. 

Hong Kong’s retail sector has struggled since the pandemic, with analysts predicting it could take years to recover. Government data released Friday reveals that retail sales in the city fell by 7.3 per cent in the first seven months of this year compared to 2023, despite a significant 52.2 per cent increase in visitor arrivals during the same period.

Once celebrated as a shopping haven, especially for mainland Chinese tourists who would often be seen leaving luxury stores with numerous bags, Hong Kong is no longer enjoying that boom. Mainland China accounted for nearly 90 per cent of the HK$22.16 billion (approximately $2.84 billion) spent by same-day visitors and 67 per cent of the HK$119.1 billion spent by overnight visitors in 2023.

Analysts predict that it will be a long time before the city sees a return to its previous retail glory, as economic uncertainty in mainland China is leading to tighter spending. Christine Li, Head of Research for Asia-Pacific at Knight Frank, attributes the reduced spending of middle-class Chinese tourists to several factors: the economic slowdown, a downturn in the property market, shifting consumption patterns, an increased focus on savings due to job market challenges, and changing travel preferences. In 2023, overnight visitors from mainland China spent an average of HK$6,495 ($833) per person, an 8.4 per cent increase from 2019. 

However, spending by same-day visitors fell 37 per cent to just HK$1,383. Li notes that post-COVID, mainland Chinese consumers are favoring experience over material goods, seeking to reconnect and make up for lost time, which has led to weaker sales in high-end luxury goods. Economic concerns on the mainland have also influenced spending abroad. Analysts highlight the rise of “zero-dollar” tours, where travelers pay upfront for transportation, accommodation, and meals, often resulting in minimal additional spending beyond these pre-paid packages. “They’re taking photos for their social media accounts but not spending money,” Simon Smith, Savills’ Regional Head of Research and Consultancy for Asia Pacific, told CNBC. “They’re not spending in stores or restaurants like they used to. The golden era of Hong Kong’s retail market is over—that’s the reality.” 

According to the Hong Kong Tourism Board, the city welcomed 34 million tourists last year, including 26.8 million from mainland China, a significant drop from 55.91 million total arrivals in 2019, with 43.77 million from the mainland. Smith noted that even locals are increasingly shopping in neighboring Shenzhen, which is just 14 minutes away by high-speed rail. “Prices in Shenzhen are a third of what they are in Hong Kong. 

You get excellent food, good service, and modern shopping malls,” he said, adding that many young professionals—typically major shoppers—have left Hong Kong. Knight Frank’s Li highlighted that even affluent Chinese visitors have reduced their luxury spending in Hong Kong. “The drop in luxury spending by mainland Chinese tourists has had a profound impact on Hong Kong’s retail sector, which was heavily dependent on high-end purchases like watches, handbags, and jewelry,” she said. 

Nick Bradstreet, Savills’ Head of Asia-Pacific Retail, acknowledged that Hong Kong is undergoing significant adjustments and that both tourists and locals now have a different mindset. While analysts believe that restoring consumer confidence among Chinese tourists will take time, there is hope for a rebound in Hong Kong’s retail sector if the focus shifts from luxury items to creating engaging and memorable shopping experiences for a broader audience. Li suggested that recovery is possible. Henry Chin, Head of Asia-Pacific Research at CBRE, expressed optimism about the retail industry’s recovery but warned that it will take “longer than previous cycles” due to current cyclical downturns and structural challenges in China.