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Falling revenues, uncertainty force brands to bypass Hong Kong for entering China

"Bypassing Hong Kong, many brands are now making Shanghai or Beijing their first port of call. The city, which European and American brands identify with for its culture, language and shopping habits, has since long being known as a China-light launch pad. Its Causeway Bay and the malls of Central and Tsim Sha Tsui are packed with smaller labels that have little to no presence on the Mainland but hope Hong Kong might be their gateway to China’s shopping classes."

Falling revenues uncertainty force brands to bypass Hong Kong for entering ChinaBypassing Hong Kong, many brands are now making Shanghai or Beijing their first port of call. The city, which European and American brands identify with for its culture, language and shopping habits, has since long being known as a China-light launch pad. Its Causeway Bay and the malls of Central and Tsim Sha Tsui are packed with smaller labels that have little to no presence on the Mainland but hope Hong Kong might be their gateway to China’s shopping classes.

With its numerous stores, Lane Crawford can ease some of the barriers to entry and import complications that foreign companies struggle with. However, the sharp drop in revenue that Hong Kong retailers have recorded due to months of violent anti-government protests, have scared away many high-end shoppers. Tourist visits plunged by around 50 per cent by late last year.

Closing of rail and sea links leads to decline in revenues

Compounding the problem, recent Coronavirus epidemic has led to the closure of a number of rail and sea linksFalling revenues uncertainty force brands to bypass Hong Kong for entering between Hong Kong and the Mainland further curtailing the mass flood of Chinese tourists who previously took advantage of lower apparel prices. As the recent decline in K-beauty brands’ average Baidu Index by 3 per cent in the second half of 2018 revealed, Chinese visitors to South Korea dropped to 4.8 million from 8 million in 2016 due to the THAAD (an anti-ballistic missile defence system) dispute.

LVMH’s revenue in Hong Kong declined 40 per cent in Q4 of last year while Prada closed flagship stores in Causeway Bay due to Hong Kong’s anti-government protests.

Brands invest in locally relevant initiatives

However, these protests are not the only reason designers are taking Hong Kong out of their business plans. In order to reach Chinese consumers, brands are investing on locally relevant marketing initiatives. Smaller brands are partnering Chinese investors who can help them clear hurdles that once tripped up foreign designers. For example, US shoe brand Allbirds and London-based label Self-Portrait are planning to open stand-alone boutiques in Shanghai, Beijing and Chengdu, without testing Hong Kong waters first. Allbirds plans to launch more brick-and-mortar outlets in China that will focus on provincial capitals, as well as other first- and second-tier cities.

Shenzhen Ellassay Fashion, which owns a controlling stake in Vivienne Tam, acquired French brand Iro’s entire operations and the brand rights to American apparel brand Ed Hardy in China, among others. This would enable the company to expand its market share rapidly.

New e-com platforms for smaller brands

E-tailers are also setting up e-commerce platforms for smaller brands. The well established E-tailer Tmall platform has become an important incubator for emerging designers hoping to break into China. The platform offers brands that are new to the market support in multiple areas including promotions to build awareness, CRM [customer relationship management], data, and product development through the Tmall Innovation Centre.”

Though things are not easy in Mainland China either, many international brands are entering the country with local partners. This may soon cause Hong Kong to lose the distinction it once had as an entry to the country’s awe-inspiring spending power.

 
 
 
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