Luxury retailers in Hong Kong and neighboring markets face Coronavirus crisis

Over the past nine months in Hong Kong, luxury retailers have encountered a challenging market. Hong Kong has traditionally been a popular destination for Mainland Chinese seeking to purchase luxury goods, but recent political unrest and consequent protests have seen a dramatic reduction in cross-border visitors and a narrowing market for the luxury goods sector. 

Now, Hong Kong and its neighboring markets face the challenge of a pandemic public health crisis. The Coronavirus first arose in the Chinese manufacturing stronghold city of Wuhan and continues to extend beyond Asian territories. As of February 9, the Coronavirus has infected 37,198 persons, the vast majority in Hubei province, and killed more than 813 persons. Unfortunately, the toll climbs with each passing day. Government quarantines affecting travel to and from Asian economic hubs and cities around the world have been put in place and are expected to continue through April. 

Luxury goods stores in Mainland China and Hong Kong are seeing a significant reduction in consumer footfall. In respect of Hong Kong, the combination of the protests and the Coronavirus has clearly had a significant impact. 

With no indication that the political protests will cease after the Coronavirus is under control, online shopping becoming more prevalent, and other shopping locations available to Mainland Chinese, the Hong Kong market is likely to continue to be a challenging one. However, when SARs struck the city in 2003, the retail market in Hong Kong recovered quickly, and many in Hong Kong hope for a similar outcome after the Coronavirus subsides. Indeed, some say there may be an opportunity for retailers who are able to offer consumers retailtech innovations such as AR and other digital store engagements to enhance the in-store shopping experience. 

As for the Mainland China market, luxury retailers should have seen an uptick in sales in Mainland China stores, due to shoppers discouraged from travelling to Hong Kong, but it appears that quarantines and fear of infection are discouraging many consumers from visiting stores in Mainland Chinese cities as well. 

In addition, many organizations are facing the difficulty of staff being unable to work, either because they are unwell, quarantined or stranded overseas. 

In these circumstances, luxury retailers face a number of potential legal issues arising from their Greater China operations, including:

  • issues arising from the closure (indefinite or otherwise) of stores, including contractual and other matters relating to premises and service providers; 
  • employee and data protection matters under local employment laws; 
  • supply chain risk (including risks associated with air and sea shipping); and 
  • non-Asian consumer concern regarding goods / materials originating from Greater China. 

If the Coronavirus has or might have an impact upon their people or operations, organisations should take swift steps to assemble an internal crisis response team and, where necessary, external advisors to ensure that they are in the best position to adapt to what is a fast-developing situation. 

We are here to help 

Hogan Lovells is deploying its Crisis Leadership Team and practitioners with expertise and deep industry sector knowledge to help guide our luxury retailer clients to ensure that they: 

  • have the policies and protocols in place to promote the health and welfare of their employees and representatives including appropriate dissemination of key medical information and updates regarding the Coronavirus and, where necessary, emergency medical treatment and travel/evacuation protocols; 
  • activate regular and clear internal reporting channels; 
  • are in a position to promote increased online retail activity and other retailtech solutions; 
  • are able to communicate to customers and vendors the current status of their operations in Asian markets; 
  • have a clear understanding of the terms of any contracts which are impacted by the Coronavirus, including in relation to premises and local service providers; 
  • understand local employment and data protection laws with a view to understanding: (i) how to implement protective measures in the workplace; (ii) the potential need to report employee information to local health authorities; and (iii) mandatory quarantines, as well as long-term shutdowns of offices and stores, are handled under those laws; 
  • maintain consistent communication with downstream suppliers to ensure they are able to meet demands during the outbreak; 
  • communicate with customs and sanitary and phytosanitary agencies and officials to ensure shipments meet all standards when originating from China; 
  • prepare for shipping and logistics disruptions to find alternatives if air or sea shipping is slowed or stalled; 
  • where necessary, maintain key lines of communication with relevant government departments, both home and overseas; and 
  • devise and implement public relations and reputation management procedures including internal and external communication protocols. 
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