2004 Apr Issue
Cover Story
JDA celebrates 10 years in Asia
Other Stories
Retail Asia-Pacific Top 500: Messages
Mainland retailers out to establish foothold in Hong Kong
2004 FMI Show zeros in on growth solutions
Ambient 2004 reveals interest towards gifts, young and trendy products


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Mainland retailers out to establish foothold in Hong Kong

Hong Kong’s retail sector, one of the hardest hit during the 2003 SARS (severe acute respiratory syndrome) outbreak, is finally picking up steam, reinforced by welcome signs of foreign retailers’ expansion into the market.

In November 2003, British fashion retailer French Connection UK (FCUK) launched a HK$4-million (US$513,430) 3,100sqf flagship store in Festival Walk, Kowloon Tong. Many more luxury brands are also planting flagship stores in Hong Kong as part of their efforts to penetrate the huge market in China.

While western companies traditionally used Hong Kong as a springboard into China, a reverse trend now sees mainland companies keen to export their brands out of China, with Hong Kong their first port of call.

On the same day FCUK opened its doors for business in Hong Kong last year, Gome Home Appliances, China’s largest electrical-appliances chain store, also made a splash with the launch of a HK$50-million store in the territory’s prime Mongkok catchment area.

Gome is one of the first mainland retailers to set up shop in Hong Kong. Its first store in the territory, taking up 25,000sqf of retail space across five levels, is reportedly the largest electrical-appliances store there. The store has a comprehensive product range, from mobile phones, cameras and computers to audio and video equipment, and white goods.

Said Simon Galpin, associate director-general, Investment Promotion, Invest Hong Kong: “Being an open, global city, Hong Kong is a good place for mainland companies to cut their teeth in the international market. It is a natural progression for them to go to Hong Kong first, using it as a test market before going global.

“Establishing a presence in Hong Kong allows them to market to a new type of consumers. If they can compete [here], there is nothing to stop them from competing in other countries.”
Although a newcomer to Hong Kong’s retail scene, Gome is a big name in China. Founded in Beijing in 1987, it now operates 150 superstores across 21 provinces with more than 10,000 employees on its payroll. Its 2002 annual sales revenue reached RMB10 billion (US$1.2 billion).

Gome is set to replicate its successful business model in Hong Kong. “We did very well during the opening period. The opening sales revenue far exceeded our expectations, while customer feedback was good,” said Wang Junzhou, Gome’s general manager for Shenzhen, Guangzhou and Hong Kong.

Wang said that Hong Kong has a well-regulated retail market and its consumers have a much bigger spending power than in China. He is upbeat about Gome’s prospects in Hong Kong, saying that the revival of its economy and the relaxation of travel restrictions for mainland tourists help boost sales.

Mobile phones and camera products are highly demanded by mainland travellers, who find it easier to get the latest models in Hong Kong where prices are also usually lower than in China. Tourist spending forms about 15% of Gome’s total sales.

Gome aims to differentiate itself from other appliance retailers in Hong Kong by providing excellent customer service and offering the lowest prices to enhance its competitiveness, said Wang.

“We are able to get good deals, thanks to our big sourcing team in China. It also helps that many international brands such as Toshiba, Philips and Sony have manufacturing bases in China, and we can source their products at better prices,” he explained.

In addition, Gome brings in high-quality but reasonably-priced brands from the mainland, he said. For instance, a 29-inch TV from Haier, a well-known home-appliances manufacturer in the mainland, is priced at HK$1,900 by Gome in Hong Kong whereas a similar product of an international brand will cost a few thousand dollars.

Wang said that Gome would further adjust its prices downwards if necessary to maintain its competitive edge.

Location is another vital factor as is the importance of having more sales channels, he added.

Gome plans to add three to five stores over the next two years in locations with high traffic. It has scheduled to open a second store in Causeway Bay in the first half of this year and a third in Shatin in the second half.

Wang is confident that Gome’s business will break-even within the first six months of its operations. In the long term, he aims to make Gome a leading appliance retailer in Hong Kong. He believes that this will facilitate the group’s ultimate plans to be a global player. The company’s operations in Hong Kong will enable it to gain valuable international retail experience and a better understanding of the international market.

Invest Hong Kong, which assists foreign retailers to set up shop in Hong Kong and source products through the territory, played a role in Gome’s venture there.

Apart from Gome, several other mainland retailers are also carving a niche in Hong Kong, said Galpin. Minghotat, a leading electrical company from Guangdong Province, opened its first store in Hong Kong around the same time as Gome’s launch, while Beijing Tong Ren Tang, a specialist in traditional Chinese medicine, has established several outlets there.
Although it has no retail foothold in Hong Kong, Lian Hua Supermarket, the biggest supermarket chain in China, got listed on the Stock Exchange of Hong Kong last year.

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