Banking on the prestige of “Made in Hong Kong”, the city’s retailers see big opportunity in the potential of the Greater Bay Area and are aggressively expanding in one of China’s wealthiest regions.
Personal health care giant Watsons, cosmetics retailer Sa Sa and casual dining restaurant chain Cafe de Coral are just some of the Hong Kong brands that are reaping the rewards of their forays into the growing economic hub.
Their success in southern China is mainly predicated on the good quality that the Hong Kong brand is known for, and analysts say they must strive to keep this identity to enjoy the continued confidence of mainland Chinese consumers.
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“We will devote more effort expanding in the [bay] area and plan to open 300 new stores there in the coming five years,” said Joyce Chiu, associate director for corporate communications at Cafe de Coral. In September the company saw a “V-shaped” rebound in mainland China with business returning to pre-coronavirus levels.
Watsons, which recently celebrated its 180th anniversary, has over 1,100 stores in the bay area, a quarter of its total portfolio in mainland China and Hong Kong. The average transaction value in its bay area shops is 5 to 10 per cent higher than in other parts of the mainland.
Sa Sa, which has about 50 stores in mainland China, plans to quadruple that number in the next couple of years, “strategically focusing on core regions and cities, including the Greater Bay Area.”
These expansions are being complemented by various programmes intended to develop customer loyalty, according to a study by global consulting firm OC&C. For example, Watsons One Pass was launched in 2019, a cross-border membership programme that can be used in all stores in the bay area. Sa Sa, meanwhile, has introduced a credit card with Bank of China that offers a special discount for shopping in its bay area shops.
It is no surprise that the region features prominently in companies’ expansion plans. The bay area is Beijing’s initiative to link the special administrative regions of Hong Kong and Macau with nine neighbouring cities including Shenzhen and Guangzhou, among the wealthiest in China, to create an economic powerhouse.
Excluding Macau and Hong Kong, the bay area has a population of 63 million. Although the gross domestic product (GDP) per capita of the region is US$23,000, half the amount in Hong Kong, its population is about nine times bigger, according to market research firm Euromonitor International.
The absence of mainland tourists, whose shopping trips to Hong Kong once catapulted Russell Street in trendy Causeway Bay to become the world’s priciest retail strip, has been keenly felt by the retail sector. With visitor arrivals plunging by 92.2 per cent in the first 10 months of the year, retail sales fell 27 per cent in the period, according to the latest government data. Hence the need to go where the consumers are.
“Hong Kong brands are quite attractive and Hong Kong is one of the most premium shopping destinations. The products and services offered by Hong Kong are known for their good quality, and shoppers are assured of their quality,” said Peter Wong, senior analyst at Euromonitor.
But amid these expansions in the bay area, Wong said Hong Kong companies “should keep their investments in their home soil.”
“It is very important to look at the GBA, but the [home market] is also very important to keep their identity,” he added.
The mainland Chinese preference for products and services from Hong Kong could be traced back to the tainted milk formula scandal of 2008 when six babies died from kidney damage and more than 50,000 babies were thought to have been hospitalised.
Nearly a decade later, a vaccine scandal was exposed after it was found that vaccines manufactured by Jilin-based Changchun Changsheng Bio-technology were ineffective against diphtheria, whooping cough and tetanus. In 2018, it was also revealed that the vaccine maker had falsified production data for its rabies vaccine.
These cases prompted a rush among mainland consumers to seek out infant milk formulas and medical services in Hong Kong.
“The GBA being one of the biggest economic clusters in China [makes it] a very good opportunity,” said Veronica Wang, partner at OC&C. “For Hong Kong [brands] specifically, the similarities in terms of cultural behaviour in the southern part of China is an opportunity.
“A lot of consumers [in the region] have similar preferences, and brand awareness is also very similar to Hongkongers’ so that’s an opportunity for Hong Kong retailers to either physically expand or try different ways to attract consumers from that area.”
This advantage is recognised by Watsons, according to Malina Ngai, COO of AS Watson and CEO of AS Watson (Asia and Europe). While the company created a technology hub in Shenzhen last year in addition to the one it has in Hong Kong, its home city will still be front and centre of its operations.
“Hong Kong will continue to be the brain and the heart of our global business,” said Ngai. “We have strict quality control on all products as we believe branding is quality.”
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