What: The city's retail sector faces new challenges as shopping patterns shift and competition from neighbouring regions intensifies.

Why it is important: The shift in consumer behavior, particularly among mainland Chinese visitors, signals a broader change in regional retail dynamics that could have long-term implications for Hong Kong's economy.

Hong Kong's retail sector experienced a rollercoaster ride following the border reopening in January 2023. Initially, there was a strong rebound with a 21% increase in sales and a 5% rise in street shop rents during the first half of 2023. However, this momentum was short-lived. Retail sales growth slowed to 12% in the second half of 2023 and further declined by 1% in Q1 2024. This downturn coincided with a significant increase in northbound travel, with Hong Kong residents' trips to mainland China, particularly Shenzhen and other Greater Bay Area cities, rising substantially. The strong Hong Kong dollar, bolstered by high interest rates, contributed to this trend, making shopping abroad more attractive for locals.

Inbound tourism, a crucial driver of Hong Kong's retail sector, has not recovered as quickly as expected. Tourists faced higher prices compared to pre-pandemic levels, resulting in significantly reduced spending. Total tourist expenditure in 2023 declined by 48% to HK141.3 billion, less than 2018 levels. Mainland tourists, in particular, reduced their spending, with same-day and overnight expenditures falling by 43% and 8% respectively from 2018 to 2023. These trends reflect a changing retail landscape in Hong Kong, influenced by factors such as currency fluctuations, evolving consumer preferences, and regional competition. The city now faces the challenge of reinventing its retail strategy to maintain its position as a prime shopping destination in the face of these new realities.

Why did Hong Kong retail sales fall after the initial rebound?