Future shop

Where do you shop? That used to be a simple enough question to answer. Food comes from supermarkets, shoes come from shoe stores, cold medicine from pharmacies. Simple. But the very concept of shopping has been redefined over the last generation. It’s not an easy answer any longer—and one that is having a massive impact on Hong Kong’s retail real estate.

During the great retail “crisis” from 2014-17, when sales plummeted and rents dropped up to 45%, mall operators, landlords and brands alike sought to reenergise the industry with more experiential shopping and better dining choices. The crisis, it seemed, stemmed from the massive growth of online shopping. Not only were mainland visitor numbers falling, but Hongkongers were shopping from their phones and desks. In reality only some were, but that doesn’t mean bricks and mortar shopping isn’t heading for reinvention.

Hard Numbers

“The retail market has observed the strongest recovery since the 2013-14 period. Now, retailers and shopping malls are adopting millennial-centric strategies that focus on experiential shopping and digital platforms,” said Colliers International in its mid-year market survey. Affordable luxury, cosmetics and pharmaceuticals are underpinning demand for space, and rents are slowly picking up: 0.3% this year so far with a forecast for 1% to 3% by December. But digital platforms do not dominate yet. According to JLL’s Reimagining Retail, Hong Kong’s online retail market is underdeveloped despite being primed for it; consider the high mobile phone penetration, stellar communications infrastructure, and high consumption rates. In 2011, Internet retail sales value in Hong Kong clocked in at US$900 million, with JLL projecting US$3.7 billion by 2021. A 300% increase, sure, but compare it to South Korea’s US$22.2 and US$103 billion, Japan’s US$53 and US$113 billion, and US$145 and US$372 billion in Western Europe, and it’s a drop in the bucket. In 2016, 17.1% of retail sales in China came online. In Hong Kong it was 3%.

A combination of factors has stunted e-commerce in the SAR, among them lifestyle, convenience, and demographics. Sky-high residential prices and tiny apartments have driven Hongkongers out of their homes and into malls for leisure and dining, and high density living and concentrated retailing make shopping extremely convenient. It’s too easy to pick up what we need after dinner. It doesn’t help that nearly 17% of the city’s population is over 64 years old—of whom only 4% shop online.

That doesn’t mean omni-channel retailing, the happy marriage of e-commerce and brick and mortar shopping, is a non-starter. “E-commerce will get popular in Hong Kong in the next few years, but it will not spell the end of bricks and mortars as online retailing cannot offset the shopping experience and enjoyment provided by physical stores,” says James Assersohn, JLL’s local director of retail in Asia Pacific. “Retailers and landlords, however, should be well-prepared for omni-channel retailing, which will be the future of retail.”

The cocktail of mobile and social media platforms, physical stores, online stores and so on, will also create a data stream that will ultimately grow retail sales through personalised marketing. Data analytics that can enhance overall experience will require heavy investment in technology, which may have to come out of rents. Operating a store can eat as much as 30% of a shop’s sales volume, providing an argument for a greater online presence. When offset against labour and rent, however, high return rates and the associated shipping and storage costs don’t translate into significantly greater profit margins—another reason e-commerce adoption could be muted.

Attracting a Crowd

Getting live people into stores now demands innovation, cross-promotion, limited edition products, and is a de facto element of omni-channel retailing. Driving traffic into stores as well as onto the web are key factors that complement each other rather than compete. Retail shops are becoming showrooms that transcend picking up goods.

Coffee brand Nespresso’s newly redesigned, sustainable (countertops are made from coffee grounds) shop in ifc is a good example of the omni-channel approach as applied to goods apart from fashion. The first in what is going to become the brand standard and the first in Asia, the boutique concept pivots on immersive, carefully sequenced experiential areas that seamlessly integrate the physical-to-digital ecosystem: online sales to an offline destination. “We live in a world where we’re no longer looking for a transactional relationship. [Consumers] want something more meaningful. We’re trying to engage our customers and offer experiences,” explains Nespresso marketing manager Hong Kong & Macau, Niloufar Kashani. “While online retailing is part of this experience … our stores are as vital as ever in connecting with customers.” The new stores will begin with a Welcome Manager to figure out what customers want; a tasting station with a daily coffee flavour; a discovery station, the Via Appia Table, for shoppers looking for coffee or a coffee maker; the Atelier Table where customers can learn how to make the perfect foam or pick up coffee-based recipes. The shops will attempt to redefine shopping at Nespresso for existing customers (Club Members).

Fashion of course came first, and online retailer Farfetch is leading the charge. Representing 700 brands worldwide, many independents, the “store of the future” is tech-enabled, tracking shopper movement with RFID tech and incorporating wish lists, holographic displays and digital mirrors. Farfetch complements existing shops while offering greater reach and exposure for brands that have trouble competing in a crowded marketplace (its retail sales reached £160 million in 2014). Hong Kong’s adidas shops now feature touchscreen tables, interactive fitting rooms and bespoke garment services.

The retail landscape is about to change drastically. Continuing vacancies in high street shops and more flexible mall operators will result in greater consumer choice, as brands operating exclusively online can afford to dabble in shops. Online retailing is coming, but a “retail apocalypse” isn’t. JLL: “Rather than seeing a world where e-commerce dooms traditional retailing, we believe that physical stores will continue to have meaning and purpose as the two formats converge into a true omni-channel shopping experience.” Even your supermarket could look different in a decade.