HONG KONG: Nielsen market analysis

One of Asia’s most international cities, Hong Kong's mobile-usage rate is ahead of most markets but the city's savvy shoppers seem to be lagging in the purchase department this year. 

Recognized as the second largest recipient of foreign direct investment (FDI) in Asia and the world's most services-oriented economy with services sectors accounting for more than 90 per cent of GDP, Hong Kong is a country heavily dependent on international trade and tourism. According to the Hong Kong Trade Development Council (HKTDC), in 2014 the city’s economy expanded 2.3 per cent in real terms, down slightly from 2.9 per cent in 2013. The soft growth experienced over the previous year can largely be attributed to the slower global economic recovery weighing on exports of goods, the slackening of tourist spending and weaker domestic demand. Growth in private consumption expenditure weakened to 2.7 per cent in 2014, from 4.6 per cent in 2013. Investment expenditure, including machinery and equipment acquisition, dropped 0.3 per cent in 2014, from 2.2 per cent growth in 2013.

While the analyst community is generally cautiously optimistic about Hong Kong’s economic outlook this year, the value of retail sales, in nominal terms, dropped 2 per cent year-on-year in both January and February 2015, after a small decline of 0.2 per cent in 2014. Labour market conditions remain tight, with the seasonally adjusted unemployment rate at 3.3 per cent for the first quarter of 2015, which is close to the lowest level in 17 years. Meanwhile, HKTDC numbers show Hong Kong’s consumer prices rose 4.4 per cent year-on-year in the first quarter, after rising by 4.4 per cent in 2014.

Consumer confidence is relatively buoyant in Hong Kong and has remained largely unchanged for the past few years. This trend continued in the first quarter of 2015, with Nielsen’s Consumer Confidence Index recording a score of 106 for Hong Kong, compared to 107 in the previous two quarters. (A score above or below the baseline of 100 indicates the degree of optimism or pessimism in a market. The Asia-Pacific average was 107 and the global average was 97.) Stable optimism and a positive economic outlook for Hong Kong, however, are not helping to drive consumers’ readiness to spend. The latest government figures show that the value of total retail sales in March 2015 decreased by 2.9 per cent compared with the same month last year. Value sales of jewelry, watches and clocks, and valuable gifts saw the largest decrease, down 18.6 per cent. Most types of retail outlets recorded year-on-year declines in sales, conceivably reflecting the slowdown in inbound tourism.

Increasing access to connected devices and the capabilities of those devices is helping to shape the behaviours and purchasing habits, as well as the media consumption, of consumers in Hong Kong. Over 80 per cent of Hong Kong households use smartphones, 6 percentage-points more than the U.S. Along with this increase in mobile usage, particularly smartphones, m-commerce is playing an increasingly significant role in the Hong Kong retail landscape, with more than one quarter of consumers in Hong Kong (28 per cent) now reporting to shop on their mobile phones.

For the remainder of 2015 and the year ahead Hong Kong’s retail sales performance is likely to continue facing headwinds as a result of declining inbound tourism. Despite the challenges, however, the continuing (albeit slow) global economic recovery and stable labor market should support consumer sentiment and safeguard against any significant pressures on consumer spending.