As Hong Kong's economy slowly resumes its recovery, mainland tourists have begun pouring back into the SAR. The omens for the city's battered retail sector, accordingly, could not be better, and many predict that a revival will happen sooner rather than later.
Mainland tourists, of course, bring money and are not shy about spending it - a heady formula for marketers looking to kickstart faltering local consumption.
A number of sectors are expected to benefit, in addition to the expected boost to tourism and hotels. According to MindShare managing director KK Tsang, luxury goods are likely to benefit most: "Mainland tourists tend to buy more luxury products such as mobile phones, jewellery and watches."
As Grey Worldwide's director of client service, Iris Chan, explains, both luxury goods and technological products are in high demand for mainland tourists eager to make use of Hong Kong's superior choice and prices.
"Branded goods such as cosmetics are more expensive in China," says Chan.
"In addition, technological products such as mobile phones and cameras are popular as there is a much more up-to-date choice in Hong Kong."
For marketers looking to tap this influx of ready cash, some repositioning may be required, although a fundamental re-alignment of the brand is not necessary, according to McCann-Erickson managing director Mike Wong.
"There is no need to change the brand simply because of changes in the customer mix," says Wong. "Instead, retailers need to work out better programmes and campaigns."
With this in mind, many retailers have begun to aggressively target mainland consumers. "Most retailers have shifted focus," says Tsang. "Apart from the local media, they will consider the tourist media and will consider outdoor media."
Chan agrees, pointing out that outdoor media is proving an increasingly popular means of targeting mainland tourists.
"Campaigns are proceeding in a more localised manner, utilising MTR stations for example, rather than mass media campaigns that cannot effectively reach tourists," says Chan.
The use of promotional packages is also on the rise, and Chan believes this is an ideal method of reaching mainland consumers.
"Some shopping malls are already trying to attract mainland shoppers by promoting packages with hotel and shopping coupons and MTR tickets," she says.
"A lot of campaigns are very promotion-driven."
Adds Wong: "Programmes should be based on partner sales, together with on-site programmes. For example, retailers could work out programmes with tourist agents."
Of course, the real challenge for marketers is to ensure that they do not focus on mainland consumers at the expense of local shoppers, particularly given the weak levels of current domestic demand.
In this respect, Chan warns that some marketing strategies risk alienating local residents, who could resent being left out of the 'special offers'.
"Many shops only offer these promotional discounts to mainland shoppers on presentation of their passports," notes Chan.
"However, it is impossible to segment the media in Hong Kong, so local buyers will be unaware that this distinction applies."
While many believe that domestic consumption has begun to tentatively rebound, any possible stalling may cause marketers to again compete on price.
If this temptation is to be avoided, argue Chan and Tsang, added value must be stressed.
"Retailers should compete more on service and added value," notes Tsang.
According to Wong, domestic consumption may benefit from the increased spending expected of mainland consumers, but only if marketers ensure that their brands remain relevant to their target market.
"I expect a positive impact on domestic consumption," says Wong.
"(Marketers) have to put forward their brand in terms of why it is relevant to the customer, whether mainland or domestic."
Indeed, after the double whammy of a global economic crisis and Sars, despondency concerning the Hong Kong economy was rife. However, the situation has improved considerably over the past few months and the outlook for Hong Kong is relatively favourable. It would seem big spenders - brands and consumers alike - were undeterred by the gloomy outlook in Hong Kong early on in the year.
DBS head of economic market research, Dr Fong Cheng Hong, says GDP for 2003 has been revised upward, from 1.2 per cent during the Sars outbreak to 1.6 per cent. Dr Fong is particularly bullish about Hong Kong's 2004 prospects, pointing out that the economy will benefit as tourist levels normalise. He explains: "We expect visitors from mainland China to increase by 20 to 30 per cent to approach 10 million, and as visitors from overseas markets return to normal levels, Hong Kong could get an additional HK$15 billion (US$1.9 billion) to $19 billion a year, assuming the per capita spending of mainland visitors is $5,000."
According to figures from Hong Kong-based research company AdmanGo, advertising spend on watches reached almost $15.5 million in August 2003, up from $14 million in February this year.
Luxury jewellery marketers have been less bullish, spending just $8.7 million in August 2003, compared to $14.7 million in February 2003.
Other luxury sectors have been considerably more cautious in spending on advertising, and exhibitions, pens and chinaware all reported significant decreases compared to the start of 2003.
This caution, however, may be misleading, given that some luxury brands have been carrying out ambitious expansion plans despite the slump.
Upmarket French luxury brand Christian Dior, for example, recently opened its 4,500 sq ft flagship boutique - the largest in Asia-Pacific - in early June in Hong Kong's Tsimshatsui shopping district.
Philippe Fortunato, managing director of Dior Far East, said the opening of the slick new store was a symbol of its commitment to Hong Kong.
"We have always been and will continue to be committed to Hong Kong as a major world city," he said.
Likewise, luxury brand Louis Vuitton has been expanding its presence by setting up a global store - its fourth in the world - putting Hong Kong in the same bracket as London, New York and Paris.
Louis Vuitton currently has three shops, and Hong Kong represents its largest market in Asia after Japan. By 2005, there are expected to be five Louis Vuitton shops in Hong Kong, with the flagship store in the Landmark.
Of course, the expected surge in mainland tourism will benefit Hong Kong's luxury retail sector, notes Iris Chan, director of client service at Grey Worldwide.
"Mainland tourists look for luxury brands in Hong Kong as they are often more expensive or unavailable in the PRC," explained Chan.
JEWELLERY, WATCHES & PRODUCTS (HKDOLLARS)
May 02 Jun 02 Jul 02 Aug 02
Arts
& antiques 91,964 186,129 96,975 34,988
Chinaware 743,204 80,920 0 21,200
Crystal
& silver 397,014 88,266 91,378 73,034
Exhibitions 46,862 39,985 155,988 68,055
Jewellery 10,199,492 9,914,077 7,690,018 6,643,331
Pen 174,880 137,815 85,840 242,385
Watches 16,678,110 18,025,369 12,449,848 12,345,495
May 03 Jun 03 Jul 03 Aug 03
Arts
& antiques 110,079 122,082 118,580 165,512
Chinaware 68,620 25,728 6,800 86,036
Crystal
& silver 218,669 150,364 32,000 88,626
Exhibitions 19,600 189,572 76,480 40,114
Jewellery 7,423,552 6,622,998 5,203,938 8,668,912
Pen 23,767 72,833 47,200 20,480
Watches 14,243,098 17,512,064 13,451,956 15,486,884
Source: Admango (40% discount applied to all figures)
TOP 5 CATEGORIES (HKDOLLARS 000'S)
1999 2000 2001 2002
Residential Estates
- Sales/Rental 850,152 829,574 949,087 1,643,694
Mainland ChinaProperties 767,715 1,136,183 1,273,440 1,293,157
Skin Care 506,117 623,865 742,373 1,175,006
Oversea Travel 866,728 801,641 962,304 1,111,619
Restaurant/Clubs 713,434 817,536 1,066,574 1,100,862
Source: Nielsen Media Research
TOP 5 BRANDS (HKDOLLARS 000'S)
1999 2000 2001 2002
McDonald's 183,082 280,037 389,496 432,763
HSBC 163,293 229,791 302,926 350,502
PCCW - - 297,155 318,689
Park'N Shop 365,151 251,422 302,267 288,453
Country Garden 240,4417 327,691 351,462 262,735
Source: Nielsen Media Research