Fortune smiles on Hong Kong brands as retail sales recover

A dog-shaped gold figurine at Chow Tai Fook Jewellery store ahead of the Lunar Year of the Dog in Hong Kong. (REUTERS)
Updated 13 February 2018
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Fortune smiles on Hong Kong brands as retail sales recover

HONG KONG: Retailers in Hong Kong such as Chow Tai Fook, the world’s No. 2 jeweler after Tiffany’s by market capitalization, are expanding again in a sign of confidence for a sector critical to the economy.
A pick-up in visitor arrivals from mainland China and strong local demand buoyed by robust stock and property markets have boosted consumer confidence, which translated into retail sales rising 2.2 percent in 2017, the first increase in three years.
Consultant PwC expects retail sales growth to quicken to 4-6 percent this year and to remain firm for several years after that. The volume of retail sales last year rose 1.9 percent after two straight years of decline.
Retail sales are critical for the economy. When 2017 GDP figures are published, analysts expect them to show that retail sales produced 17 percent of the economy’s growth and about a 10th of its jobs.
Like many other brands, Hong Kong-listed Chow Tai Fook had closed stores in recent years. It said it opened three new shops in Hong Kong between October and December 2017 and plans further openings, including in neighboring Macau. Including mainland China, the brand increased its stores to 2,565 in 2017 from 2,377 in 2016.
“The outlook for the jewelry sector in Hong Kong this year is positive against the backdrop of a recovering economy in mainland China ... and the booming stock and property markets that create a positive wealth effect,” the company said in a statement.
Other stores will follow Chow Tai Fook’s suit, figures from real estate services company Colliers International suggest. It predicts that 1.38 million square feet of new retail space will come onto the market in the core shopping districts of Hong Kong in 2018, a sharp increase from 327,000 square feet in 2017.
Chow Tai Fook’s smaller rival Luk Fook Holdings added two stores in Hong Kong in the final quarter of 2017 and jeweler Chow Sang Sang said it might open more shops in Hong Kong.
Skincare and cosmetics brand L’Occitane International increased its stores in Hong Kong to 36 in 2017 from 34 in 2016 and rival Sa Sa International added four to take its total to 119 in 2017.
Visitors to Hong Kong from the Chinese mainland are rising again, which has helped boost retail sales. Their numbers increased 3.9 percent in 2017 after falling 6.7 percent in 2016. Total visitors also increased in 2017 after declining in 2015 and 2016.
One attraction for Chinese mainland visitors to Hong Kong is that imported goods are often cheaper than in China due to lower tariffs.
A Hong Kong jobless rate of less than 3 percent — the lowest in nearly 20 years — is also boosting confidence and analysts said there is little pressure on retailers to pay higher rents, allowing them to keep costs under control.
“There are still many empty shops on the streets, absolutely it is not a time for raising rents,” said Joe Lin, executive director, advisory and transaction services, retail at property services group CBRE in Hong Kong.
“I don’t believe we will see a significant rebound in retail rent in the next 12 months,” he said.
Colliers said favorable rents on first-tier high streets were driving demand for shops in prime locations although brands, including Major League Baseball (MLB), Swedish watch brand Daniel Wellington and Swiss luxury watch maker Carl F. Bucherer, were opting for smaller stores of around 1,000-5,000 square feet rather than bigger ones.
“International mid-market fashion and lifestyle brands are thriving, new F&B (food and beverage) concepts continue expansion,
luxury watches and jewelry demand continue a slow recovery,” it said.


Global consumer giants like Unilever, Nestle head online to lift earnings

Updated 1 min 10 sec ago
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Global consumer giants like Unilever, Nestle head online to lift earnings

LABEL: CONSUMER GOODS

Unilever, P&G and Nestle chasing subscription customers
Revenues and consumer data are attractions
Business model has not always worked in the past

LONDON: Major consumer companies including Unilever, Procter & Gamble and Nestle are chasing consumers who want food and household goods delivered automatically, even though this kind of business has not always worked.
The companies are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.
The world’s biggest packaged food company, Nestle, whose Nespresso coffee is already a sizeable subscription business, recently launched a subscription program for nutritional drinks in Japan and expanded ReadyRefresh, an online bottled water service, in the United States.
It also wants to expand the Tails.com subscription pet food from Britain to continental Europe, one of its executives told Reuters. It is testing the service in France for a possible launch this year.
Unilever on Monday will launch its Skinsei brand in the United States after testing, offering “personalized” skincare by subscription. Unilever expanded its Dollar Shave Club subscription razor service to include cologne and beard oil in 2018 and toothpaste in 2017.
Meanwhile, Procter & Gamble, the world’s largest home and personal care company, expanded its Gillette on Demand razor subscription service to Canada. Subscribers can text when they are ready for their next shipment.
Selling directly lets manufacturers skirt retailers, giving them more profit and control over pricing, promotions and merchandising. This helps when retailers such as Amazon and Sainsbury’s are pressing consumer product companies for discounts and pouring resources into own-label products.
Subscription selling gives them guaranteed revenues, a better picture of customers and can make goods cheaper to deliver.
“They’re getting it to you on a specific date, but they don’t have to get it to you in one or two days,” said retail analyst Scott Mushkin at Wolfe Research. “It’s a way for them to manage down their logistics and distribution costs.”
Amazon has offered discounts since 2006 with its Subscribe and Save program, which gives people up to 15 percent off when they sign up for repeat deliveries of household items.
It is now “a multi-billion dollar business inside Amazon,” said Tom Furphy, CEO of venture capital firm Consumer Equity Partners and former vice president of Amazon’s consumables unit, which launched the service.
Liz Cadman, founder of mysubscriptionaddiction.com, said children’s educational boxes were the US website’s hottest category in 2018, followed by grooming, make-up and beauty. Biggest losers were snacks, clothing and pet goods, she said.
The trouble with subscriptions, analysts say, is high cancelation rates as consumers get bored, high marketing costs, costly delivery and the fact that people often end up with goods they don’t want.
Mondelez International has suspended its Oreo Cookie Club, a program rolled out last year. For $20 per month, subscribers got a box containing Oreos in different flavours, with recipe cards, candy and merchandise such as Oreo-branded socks, sunglasses or cups.
After three months, Ruby Scarbrough canceled her subscription, saying in an online review that she could buy the cookies more cheaply at a store.
Jeff Jarrett, global head of e-commerce at Mondelez, pointed to the challenges of delivering mass-market snacks economically and keeping customers interested.
Nobody has “cracked the code” for snack subscriptions, he said, though Mondelez may give its Oreo club another shot, likely with more flavours, better merchandise or a better online experience.
General Mills axed its Nibblr subscription snack business in 2015 after 18 months. A similar project from Kellogg, reportedly planned for that year, never materialized. Walmart shut its Goodies subscription snack business in 2013 after a year.
While subscriptions delight some consumers, they frustrate others because “you end up with too much of the product or too little,” Procter & Gamble CFO Jon Moeller told Reuters.
Subscriptions represent about 10 percent of all US online sales, and more than 1 percent of all retail sales, said Burt Flickinger, managing director of consumer consulting firm Strategic Resources Group.
He said subscriptions are the hottest part of the industry, growing more than 17 percent a year and outpacing overall online sales, which are growing more than 12 percent. He said subscriptions may exceed 10 percent of the US retail market in five years and 15 percent in 10 years.
Euromonitor International says subscription shaving clubs, including Dollar Shave and Harry’s, took about 12 percent of the $2.1 billion US market for men’s razors and blades in 2017, up from 6.4 percent two years earlier. But Dollar Shave’s sales have slowed dramatically, with Unilever in October citing growth of around 10 percent year-to-date, compared to more than 50 percent in 2016, the year it bought the brand.
Unilever said a slowdown was not unusual but it was “pleased with performance” at Dollar Shave, whose North American business would be close to breakeven this year.
Unilever’s global brand vice president of skincare, Valentina Ciobanu, told Reuters the company wants to make its subscriptions more flexible, because consumers demand options when they buy.
“We don’t force you to subscribe at the beginning,” Ciobanu said about the Skinsei brand, which she created inside the company. Skinsei aimed to keep shoppers loyal in part by making changes to the products it recommends based on the season of the year and other factors, she said.
Ciobanu said Skinsei’s products could be combined into more than one million skincare regimens. She declined to give sales projections.
However, she and other executives said it was unclear whether subscription brands would take off or remain niche.
“For now it’s still early adopters. The question mark is how long will it take to become more mass, and I think nobody has the answer to that question,” said Bernard Meunier, who runs Nestle’s Purina Petcare business in Europe, Middle East and North Africa.