HK businesses are cashing in on the online-shopping boom, generating new retail jobs
Hong Kong has long been a shoppers’ paradise, but right now there’s a new retail movement sweeping the city that is changing the face of shopping. You won’t find it in Central or Tsim Sha Tsui, but instead on every computer, smartphone and tablet.
Online shopping is convenient, fun and, for many “e-tailers”, increasingly profitable. Most people spend hours every day online working, playing, studying or communicating with friends, so why not try to get them to shop online as well?
Business transactions can already be done with most major companies through their websites, but through the help of e-commerce companies, smaller shops and retailers are increasingly getting in on the game.
“Nowadays, everyone is spending much more time online. It’s much more engaging. You can do it on your own time. Everything is moving away from a traditional business to a digital platform,” says Danny Yeung, CEO of Groupon HK.
Groupon entered the Hong Kong market when it purchased the local group-buying start-up uBuyiBuy in 2010. Groupon HK currently has over 10,000 partner merchants and sells up to 50,000 units of its daily-deal coupons every day.
Yeung believes Hong Kong’s e-commerce drivers differ from those in other major markets. “What’s driving e-commerce in Hong Kong is different from what’s driving it in the US or Europe. Basically, it’s getting something you’re not able to get offline.”
However, he thinks Hong Kong is lagging behind other markets in terms of e-commerce. “There are only a few exceptions, of which Groupon is one. I think the reason why we’re successful is because we give consumers something of very good value.”
To spur online shopping, people must have a good reason to go online and buy. “Some visitors from the mainland look at our website to see what’s interesting to eat, what’s interesting to buy and other deals before actually coming to Hong Kong,” Yeung says. “They buy the coupons online and then use them when they come to Hong Kong during weekends or holidays.”
Most people in Hong Kong, however, are still only just getting used to the idea of shopping online. A significant number have still never made an online purchase.
“Compared with South Korea or Japan, where over 90 per cent of internet users have shopped online, Hong Kong – from what I understand – has only about a 60 per cent internet-shopping rate. We have 4.7 million internet users in Hong Kong, but only 60 per cent have ever shopped online,” Yeung says.
“Saying that, the rate has risen drastically over the past few years. Many young people are now more willing to try something new. In the next two to three years, I think e-commerce growth will be very big. But the main thing is giving people a reason to go online.”
Yeung would also like to see the Hong Kong government helping promote e-commerce. “It’s very important that the government does more to capture technology companies coming in. The tech scene in Hong Kong is, I would say, nonexistent.”
Alan Lim, CEO of E-Services Group – a Hong Kong-based consumer-electronics e-tailer – believes many businesses that jumped into e-commerce early did so because of the cost-saving benefits.
“With the fast-rising cost of real estate in most parts of the world, traditional bricks-and-mortar retailers are finding their fixed costs rising fast and are typically having to charge more,” he says. “E-commerce retailers do not require premium office workspace and can therefore offer cheaper prices to attract customers.”
Mobile commerce, or “m-commerce” – a form of e-commerce using mobile devices – has proved very profitable in countries such as India, China and Indonesia, which have a higher penetration of mobile broadband than fixed-line broadband.
Market research firm iResearch has attributed the rapid development of m-commerce to the greatly improved user experience, the aggressive sales promotion of e-commerce websites, and the popularity of 3G and 4G mobile devices.
In China, e-commerce group Alibaba’s combined gross merchandise volume from its two online marketplaces, Taobao and Tmall, exceeded one trillion yuan (HK$1.25 trillion) in 2012.
By 2015, China’s Ministry of Industry and Information Technology intends to double the total value of e-commerce sales on the mainland to 18 trillion yuan, and online retail transaction to more than 3 trillion yuan.
Needless to say, e-commerce would not have been able to build consumer confidence without easy, reliable and secure payment options. “PayPal and credit card companies have done a very good job in educating first-time buyers that buying from the internet is relatively risk-free,” Lim says.
Despite the steadily building momentum of e-commerce, traditional bricks-and-mortar businesses have no reason to feel threatened – at least not yet. Even in an advanced market such as the US, e-commerce sales represented only 5.4 per cent of total retail sales as of late 2012.
Lim also warned that because of the low barrier to entry for online businesses, not every e-tailer and e-commerce provider could necessarily turn a profit.
“Almost anyone can start selling online through eBay or advertise their products or services through Google Adwords. But this creates margin challenges. A business that is trying to make profits and support its employees has different margin requirements compared with a college student who starts an e-commerce store to show that he can also be a businessman,” Lim says.
Businesses, however, are also discovering that the return on investment for e-commerce doesn’t necessarily need to be measured in terms of online sales. Many consumers actually use e-commerce websites to check out products before going to merchants’ physical stores to make the purchase, in a process called OTO – online to offline.
“OTO is already a proven success in Europe and the US,” Lim says. “Looking at case studies from Argos [a UK-based retailer famous for its catalogue-based retail model], OTO has totally transformed its business. It allows consumers to be able to browse products in the comfort of their homes and offices, or even on their mobile while travelling, and pick them up on the same day. This saves them from queuing or searching for the product in the store.”
Of course, e-commerce is not only about the consumers. Whenever Groupon HK approaches merchants, one of the first things it asks is how it can help them reach their objectives.
“That’s the key for us,” Yeung says. “It’s twofold: the customers and the merchants. We want to make it a win-win situation. For the merchants, their objective is getting new customers, so we tailor a package specifically to meet their needs. If their target is just marketing, we could also do something that specifically targets marketing. It’s really customised according to the merchant’s needs.”