How US retailers in Hong Kong can bounce back from unrest

This article originally appeared on SmartBrief

Ongoing protests in Hong Kong have paralyzed local retailers amid Chinese tourists' reluctance to shop there.

In response, US retailers operating in Hong Kong can use cross-border e-commerce best practices to help bounce back.

For instance, these American companies can emphasize the ease of shopping from home or on the go, and how their goods are affordable and less likely to be counterfeit, helping to boost consumer confidence.

Hong Kong’s retail industry is facing a crisis

The recent unrest in Hong Kong has had a dampening effect on retail sales in Hong Kong. The Hong Kong Retail Management Association mentioned that its members suffered a 50% sales decline in the first three weeks of August.

Luxury retailers Chow Sang and Chow Tai Fook have seen their stock prices fall 17% and 20%, respectively, since mid-July. Cosmetics retailer Sasa International has also seen its stock price fall 21% over the same timeframe.

This sales downturn is a big issue for international retailers because Hong Kong is widely perceived to be a retail center in Asia and a key stepping stone to the China market. For example, Rihanna’s Fenty Beauty is making its first stop in Asia by launching in Hong Kong’s DFS T Galleria and Sephora stores this September.

Yet in times of crisis, there are always opportunities. Chinese e-commerce behemoth JD.com made its claim to fame when it started delivering electronics during Beijing’s 2003-04 SARS crisis. China’s largest express delivery company SF Express – widely considered the “FedEx of China” – also took advantage of the SARS crisis by leasing five planes for air delivery, during a time when no one was flying.

Retailers in Hong Kong can use e-commerce to reach Chinese consumers. Historically, e-commerce sales have been weak. A report by Nielsen shows that e-commerce revenues in Hong Kong will reach just US$6.4 billion in 2023, a paltry sum compared to the city’s US$62.2 billion in total retail sales in 2018.

Why? The physical layout of the city – tightly packed with shops and restaurants on every corner – ensures that most commodities are always within a few minutes’ walk. Mobile payments also never took off in Hong Kong.

But the ensuing protests show no sign of letting up, and retailers are worried about the long-term impact on sentiment, as Chinese tourists may be deterred from visiting Hong Kong for a long time.

We explain why online retail and cross-border e-commerce could make sense for retail players looking to continue to reach Chinese customers going forward. Note that, while I’m focusing on the unrest in Hong Kong to discuss cross-border e-commerce, the principal can be applied to most any instance civil unrest when tourists are reluctant to shop or visit.

Cross-Border e-commerce – a way to continue selling to Chinese tourists

Cross-border e-commerce is often considered to be a step up from selling to Chinese tourists or resellers. It enables international brands and retailers to ship products directly to Chinese consumers, through a trade channel that is separate from general trade and import.

The taxes are lower, the customs clearance process is streamlined and there is no need to find a distributor or register products. The set-up process takes just 2-3 months – much shorter than the time it would take to set up and establish an office in China.

In short, it is a great way for brands and retailers to test the China market without investing a large sum in entering the market. Selling directly to Chinese consumers reassures them that they are purchasing authentic, quality products. Fear of fake goods is a key concern for many purchasing beauty, health, and luxury fashion products.

Source: Azoya Consulting

Who’s selling through cross-border e-commerce?

Hong Kong department store Lane Crawford is, for one. The iconic chain is widely considered to be a leader in luxury retail in Asia, and many brands consider it to be a stepping stone to the China market. Many fashion and beauty brands sold in its stores have not yet entered China.

Lane Crawford has been stepping up its e-commerce capabilities as today’s generation of millennials demands a smooth customer experience online. Its cross-border e-commerce China website is equipped to target Chinese consumers, who can pay with WeChat Pay/Alipay and browse the many fashion trends shown on its site. The website also shows makeup tutorial videos to teach consumers how to apply makeup.

Another player is cosmetics retailer Sasa, widely considered to be the Sephora of Hong Kong. Sasa operates over 270 retail stores in Hong Kong, mainland China, Singapore, Macau, and Malaysia. It is a top destination for visiting Chinese tourists, who account for over 70% of the company's sales and spend an average of HK$700 (US$89) per store visit.

Sasa’s cross-border e-commerce site sells top-selling brands such as DHC and Bioderma. These international beauty and cosmetics brands are difficult to find in China. Because of animal testing requirements in China, many cruelty-free brands cannot enter China through traditional import/export channels.

Sasa's e-commerce operations also offer cross-border payments through Alipay and customer service through its account on popular social commerce platform WeChat. In addition to its own website and WeChat presence, Sasa runs stores on Tmall Global and JD Worldwide.

Key takeaways

1. Hong Kong retail is facing a crisis as Chinese tourist visits decline and sales continue to slump. Retailers and brands there are fretting over what to do next

2. E-commerce could be a way to improve sales. Hong Kong historically has had a weak e-commerce industry but cross-border e-commerce can be used to continue selling to Chinese consumers

3. Retailers Lane Crawford and Sasa are two players selling to China through cross-border e-commerce. They sell many beauty and cosmetics products not available in offline China retail stores due to China’s animal testing requirements.

Franklin Chu, managing director of Azoya USA, is an expert and speaker on China cross-border e-commerce. Franklin also serves as President of Sage Capital Group Inc. a private equity and investment management firm and is a graduate of Yale University and Harvard Business School.