The e-commerce industry in Hong Kong is experiencing rapid growth as more retailers are switching to online operations.
This increasing rate is because of social distancing rules and business interruption following the Covid-19 pandemic and, more importantly, because e-commerce businesses are more cost-effective and profitable.
The e-commerce penetration rate in Hong Kong stood at 59.8% and is expected to increase to 79.2% in 2023.
Hong Kong e-Commerce Market Value
According to J.P Morgan’s 2019 Payment Trends - Global Insights Report, the Hong Kong business-to-consumer e-commerce market is worth $3.7 billion.
This figure is a testament to the country's advanced e-commerce infrastructure and rapid e-commerce growth potential.
The report also highlighted that while only 25% of Hong Kong’s citizens currently shop online, which contributes to only 11% of the country’s total retail spend, the country has huge room for growth as the online retail market is currently expected to grow at a rate of 10.2% year.
Leading e-Commerce Categories
The top three e-commerce categories in Hong Kong include travel, consumer electronics, and health and beauty.
It was reported that in 2019, the e-commerce retail sales value of beauty products accounted for 6.5% of the total health and beauty product retail sales in Hong Kong.
However, this percentage is expected to increase given the rapidly increasing internet penetration rate and changing consumer attitudes.
Therefore, it is now expected that online health and beauty retail will grow to 11.8 percent in Hong Kong by 2024.
There is a strong demand for consumer electronics again due to the high internet penetration rate.
The country is generally more technologically advanced than its competitors in other regions.
Increase in Online Shopping
One of the main reasons why there is a huge demand for online shopping in Hong Kong is the country’s high internet penetration which currently stands at 89.4%.
Another major advantage for the country is that it has the right logistical infrastructure available to meet this high demand resulting in an increase in delivery volumes.
Hong Kong currently ranks 12th in the World Bank’s global ranking of logistics capabilities and quality.
This infrastructural support allows the country to meet the increasing online demand and facilitates a further increase due to continuous transport facility improvements.
This further allows businesses to expand, meet customer expectations, and run smoothly, which continues to make online shopping an attractive and convenient option for customers.
Cross-Border VS Domestic E-Commerce Spend
Extremely high levels of cross-border spending also characterize the Hong Kong e-commerce market.
This is a huge advantage for international merchants as cross-border sales are becoming increasingly accessible and convenient due to mobile baking, international e-commerce platforms, and app-based e-commerce sites.
Cross-border spending makes up 70% of the country’s total e-commerce market.
This is largely due to Hong Kong’s small domestic e-commerce market having to compete with international merchants with large e-commerce platforms supporting them.
Additionally, the country’s advanced logistical infrastructure makes shipping, transport, and delivery extremely convenient both for the customer and the supplier.
Popular Online Payment Methods
The Hong Kong e-Commerce market is thriving due to the country’s excellent and growing smartphone, online banking, and internet penetration rate.
This technological advancement has resulted in card payments, and digital wallets are becoming the most popular way to shop online in Hong Kong, a country previously known for having a strong cash culture.
Currently, card payments are used for almost half of all e-commerce payments in Hong Kong and generate approximately $18 billion in sales per year
Additionally, to take advantage of the high bank account penetration rate, there is an increase in cross-border spending as domestic banks offer attractive multi-currency cards that give consumers a choice to make payments in many different currencies.
After card payments, digital wallets are becoming increasingly popular as they are currently used for a quarter of all e-commerce transactions processed every year.
JP Morgan’s Global Insight Report predicts that the demand and use of digital wallets will exceed that of card payments.
The use of digital wallets is expected to experience an annual growth rate of 32%, making digital wallets the primary e-commerce payment method in Hong Kong.
The Rise of Mobile Commerce
Mobile commerce is a form of e-commerce that allows customers to access online shopping platforms without using laptops or desktops.
Mobile commerce platforms include in-app purchasing, virtual marketplace apps like Amazon, mobile banking, or using digital wallets.
Again, due to Hong Kong’s high internet penetration rate and smartphone uptake, mobile commerce has been strong growth, which has been predicted to grow at an annual rate of 13.2% by 2023.
Additionally, with the launch of 5G in Hong Kong, the increased internet speeds further contribute to the increase in mobile commerce as customers find it a more convenient and easy process of purchasing goods and services.
Improved Customer Payment Experience
The competitive nature of both the domestic and global e-commerce markets has resulted in online merchants focusing on developing new business models to provide an improved customer experience.
New business models include ‘buy now pay later services such as Singapore-based Hoolah, which launched in Hong Kong in November 2020.
Services like Hoolah allow online customers to pay for their purchases in three interest-free installments.
This is beneficial for those who need to make a purchase but are still waiting for their payday
It makes online shopping a more attractive option than in-person shopping, where such services are either limited or not available at all.
Additionally, merchants who wish to hold a competitive edge accept changing consumer habits and transform their businesses and service delivery to adapt to new consumer demands.
Impact of Covid-19
The social distancing rules and closure of physical stores following the Covid-19 pandemic resulted in a massive increase in online purchases of essential goods.
Not only did e-Commerce stores increase, but several brands and retailers with only physical stores switched to online business operations to increase their sales and meet changing customer demands.
The Visa Consumer Payment Attitudes Study found that nearly 52% of all shopping carried out in Hong Kong during the pandemic was online compared to just 40% before the pandemic began.
Innovative e-Commerce Business Models
A newer trend within the e-Commerce market in Hong Kong that is gradually gaining traction is live streaming.
This is a new business model known as ‘live stream e-commerce where customers can directly view and buy from live online video streams hosted by social media influencers and celebrities.
Many consumers can now make purchases from live online video streams where the hosting celebrities give their opinions and suggest which products to buy online.
Moreover, social media has had a significant impact on the e-commerce industry as now retailers can directly reach out to customers to advertise and market their products.
A case in point is the Landmark shopping mall in Hong Kong which launched an e-Chat shopping service in May 2020.
Through the e-Chat shopping service, customers can directly communicate with store staff to place an order via chat.
Not only does this allow consumers to make a better-informed decision regarding their purchase through easier communication, but it also replicates the level of interaction some consumers might prefer speaking to store staff face to face when shopping in-store.
There is no better time than now to set up an e-commerce business in Hong Kong, given the recent trends and statistics proving that the country has a thriving e-commerce market.
Not only is the e-commerce market doing well now, but it is predicted to continue to grow, which can ensure businesses that now is the right time to establish and invest in an e-commerce startup.
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