Temporary store in Tsim Sha Tsui. Photo by K.Y. Cheng
There’s no mistaking the scene on Jordan Road: people are hunting for bargains. In the hollowed-out remains of an old clothing store, the faded words “In Fashion” still visible above the entrance, a motley crowd looks through boxes of discount Crocs sandals and kitschy plastic jewellery. In the corner, a man hawks vacuum-sealed plastic containers, his amplified voice competing for attention with the shop’s other employees, whose sales pitches are also broadcast through loudspeakers.
The miniature bazaar, which has no name, is the creation of Peter Hui, a 32-year-old entrepreneur who moved to Hong Kong from Fujian in 1996. A little over a decade ago, during the Asian financial crisis, he was working as a door-to-door watch salesman when he noticed temporary variety stores being opened in vacant retail spaces.
“The economy was quite bad and businesses were not very profitable, but we saw some people with these outlet stores and thought, ah yes, that’s a good concept,” said Hui. “Selling things for cheaper, no renovation fees, low expenses and temporary leases. That’s all good for making a profit.”
Hui and his company, Price Killer Shop Group, now own 10 temporary stores around the city. In a way, he embodies Hong Kong’s entrepreneurial energy, which manages to find expression even in the midst of an economic downturn. Even as the recession deepens and consumers dig ever deeper into their pockets, there is money to be made, and discount temporary stores like Hui’s are becoming more and more common.
Until now, the city’s retail market seemed to be doing well in spite of the ongoing financial crisis. Sales grew in November, December and January, but recently-unveiled governments statistics show a precipitous drop in February, with sales down 12.6 percent from 2008. Even considering the “New Year effect”—last year’s Lunar New Year fell in February, boosting retail sales in that month—retail is still down by a significant amount.
“If you take away the New Year factor, it’s still negative, a drop of about two percent,” said Caroline Mak, the chairwoman of the Hong Kong Retail Management Association, a retail advocacy group. Sales in every retail sector is down, she added, except cosmetics, health products and food, and growth in those areas is due mainly to inflation.
“The retail landscape is pretty difficult right now. A lot of retailers are sitting on high-rent stores that were rented in 2008 or 2007, so they’re still paying a lot of money. I won’t be surprised if more shops continue to close their doors because of high rents and bankruptcies. Instead of lowering their rents, landlords want to wait it out until the end of the year, renting to temporary stores in the meantime,” said Mak.
So far, Hong Kong’s main shopping districts seem relatively insulated from the drop in retail spending, thanks largely to an unabated influx of spendthrift tourists from the mainland. But other neighbourhoods will be harder hit. Since many retailers signed contracts at the top of the market, one or two years ago, rents remain high and so does the potential for bankruptcy. When shops go out of business, landlords are faced with a few options: bide their time by keeping the space empty, slash rents, or play host to a temporary store that will help them cover costs until they find a new permanent tenant.
“We did that quite recently, it’s a three-month lease that went to a retailer that wanted to take advantage of a vacant shop,” said Nick Bradstreet, senior retail director of Savills property agency. “It gave the landlord some good buying time, or waiting time. The shop was leased after three months and the temporary shop moved out and the new one moved in. It was win-win for everyone.”
Leo Sin, a professor of marketing at the Chinese University of Hong Kong, echoes Bradstreet’s analysis.
“If landlords think that after a short time, the economy will go up again, they have inclination to rent the outlet right away to a temporary outlet,” he said. “Although the rent might not be as high as a permanent one, it’s better than keeping the space idle. If after a few months the landlord has found the economy has turned around, they can rent the space to a tenant at a higher rate. But if the economy is still bad, they’ll continue with the short-term tenant.”
With temporary stores comes a change in shopping culture. When Hong Kongers used to spending their evenings in shopping malls and retail streets find themselves worried about money, they don’t necessarily stop consuming, says Sin. Instead, they delay purchases and wait for bargains. Ordinary retail shops could have a hard time keeping up with the low price, low overhead and high turnover model of temporary stores. Caroline Mak estimates that a temporary store could push down sales at nearby stores by as much as 20 percent.
“They can sometimes be quite damaging,” she said. “If you have a cluster of stores selling different types of sneakers, running shoes and so on, and you suddenly have a temporary store down the road selling similar models at a 70 percent discount, you can imagine how badly hit sales will be.”
Temporary stores save money on interior decoration (there is none) and signage (it’s hand-drawn) and their inventory consists mainly of surplus, liquidated or discontinued items. The need to clear their stock as quickly as possible, meanwhile, forces them to adopt hard-sell tactics and bargain prices that draw customers away from traditional shops. In Sin’s words, they “cheapen” retail neighbourhoods by driving down prices and increasing competition, which isn’t necessarily a bad thing for hard-up consumers.
On a recent evening on Prince Edward Road, a handful of people browsed through a temporary store in the flower market. It had no sign, just a smattering of posters for real estate brokers above the entrance, and all the ambiance of a commercial warehouse. Looking over a vast array of ceramic dishes and household products, an employee boasted that it sold “several hundred” different things. Near the back, a middle-aged man, Mr. Lee, held a pair of $5 plates in his hand.
“I was working in a security company but I lost my job last month,” he said. “Before, if it was something cheap, I’d buy it without hesitating. Now I’ll think twice and I’ll buy it only if I really need it. I’m getting these to replace some old ones. The quality here is only so-so. If they were any more expensive, I definitely wouldn’t buy them.”
Back on Jordan, a woman who asked not to be named stood in Hui’s store with three pairs of Crocs in her hands. “I was just looking for one pair of shoes but these are so cheap I’m going to buy three,” she said. “The recession has changed my shopping habits. Now, I only buy cheap things, and bulk, because it’s always cheaper to buy in bulk.”
“You could say that, for me, the recession is good for business,” said Hui, who fielded half a dozen phone calls during the course of a 30-minute interview. “It’s easier to find space to rent and landlords are willing to settle for less. But it’s also tough, because even though we have more in stock, we need to keep up with customer demand. We need to be very quick with our decisions, especially if we’re going to be forced to move after a few months when the lease is up.”
Not all of Hui’s shops are profitable, he says, but the successful ones generate between $10,000 to $50,000 of profit per month. Most of his products come from the mainland, with some from Taiwan and Japan, and Hui maintains a close relationship with his suppliers in China. Although the collapse of the export market has left manufacturers with large amounts of surplus stock, he says his costs haven’t dropped, because the Chinese yuan remains strong compared to the Hong Kong dollar.
Still, Hui’s business is going well – a sign hanging over his Jordan store announces that he is looking for employees. But he has no plans for his shop to stay put. “Long term low prices would drag down the market price,” he said. “If we continue to move to different areas, customers will appreciate the low prices more. We have to keep them enticed.”
Another version of this story appeared in the May 4, 2009 edition of the South China Morning Post.
Tags: Business, Hong Kong, Kowloon