How Hong Kong’s pivot to online shopping impacts physical retail stores

Online transactions surged 54.9% in the first half of 2021.

The pandemic has seen retail sectors around the world pivoting to digital as lockdowns and restrictions limit people’s movements in the community. JLL notes that in Hong Kong, online sales transactions jumped 54.9% in the first half of 2021 - a testament to the changing consumer behaviour brought about by COVID-19.

Online retail is set to become the norm post-pandemic, and this is expected to drive significant structural changes to physical shops.

“A skew towards heavy leisure and experiential retail is expected as these are irreplaceable by online provision. Sooner or later, we shall expect to see more experiential retailers such as KidZania that offer real-life experience while integrating retail business opportunities to join the Hong Kong retail scene,” says JLL.

Here’s more from JLL:

Since the first outbreak of COVID-19, Hong Kong’s retail industry experienced a significant downturn. Eventually, the market is beginning to see a silver lining of revival. Transforming into an online operating mode has been one of the more popular solutions for retailers to cope with lockdowns and social distancing measures that the government imposed to control the pandemic. With online sales transactions surging 54.9% y-o-y during the first half of 2021, there is no denying that the pandemic has profoundly changed consumer behaviour which in turn speeds up the structural change in Hong Kong’s retail landscape.

Although the pandemic was undoubtedly a catalyst for a breakthrough in online sales, the shift towards online started years before the pandemic. The concept of ‘Dark Store’ emerged in Europe at the turn of the 21st century, promoting retail space not intended for in-store shopping but rather to fulfil online demand instead. Dark stores not only provide greater convenience to consumers, but also benefit retailers in terms of flexibility, efficiency, and lower costs. In recent years, we have witnessed many instances where retailers such as Deliveroo, HKTV Mall, ASOS etc., successfully seized market shares from traditional players with their online orientated business strategies. Considering such benefits and the vast development potential, adopting the dark store concept is certainly one of the solutions for retailers to remain competitive in the market.

Thanks to technological advancements, today we can easily order almost anything by simply clicking a button, without visiting physical shops. While this may imply the need for physical stores would diminish over time, the pertinent question is whether or not it is feasible for all retail categories to transform completely online. The rise of artificial intelligence has impacted traditional industries like healthcare and education; applying suitable technology to their services they can promote a more efficient and effective service provision online.

Nevertheless, a broad range of traditional services are still bound to their physical sites due to the nature of their services or technological limitations. Take medical check-up service for example. The development of ‘AI Doctors’ allows preliminary medical diagnostic and prescription services to be performed online. However, comprehensive body checks still require patients to physically visit medical centres as the necessary machines have yet to be technologically advanced for online check-ups.

In future, it is difficult not to expect that these technological limitations will be overcome and more retailers will transform online. While some consumers still prefer the physical shop experience, it is inevitable for online retail to become the core trend of future retail. With that in mind, the demand for physical shops is expected to go through a series of significant structural changes; a skew towards heavy leisure and experiential retail is expected as these are irreplaceable by online provision. Sooner or later, we shall expect to see more experiential retailers such as KidZania that offer real-life experience while integrating retail business opportunities to join the Hong Kong retail scene.