23 October 2016
A growing sporting culture boosts demand for related goods and benefits the retail sector. Photo:
A growing sporting culture boosts demand for related goods and benefits the retail sector. Photo:

How sports is changing the local retailing scene

The Olympic Games remind us that sports is an integral part of a modern lifestyle.

Over the last two decades, Hong Kong has increasingly established itself as a sporting city.

According to a recent Jones Lang LaSalle report, the number of people participating in government-sponsored recreation and sports programs has grown from 1.78 million in 2006 to 2.54 million in 2015, representing a growth of over 40 percent.

The use of government facilities for sports has also grown by tens of percentage points during the period.

Several of our sports events, such as the Standard Chartered HK Marathon and Rugby Sevens, have become significant on a global scale.

The most obvious beneficiary of these events is our tourism industry, of which the hotel sector is a part.

Furthermore, the development of a sporting culture has incentivized an increasing number of Hong Kong people to adopt sports into their daily lives.

To support this growing interest, various sports-related industries have developed to the benefit of the retail sector.

One trend observed in the foreign market is that an increasingly large portion of a retail establishment is now dedicated to lifestyle services.

In Singapore, for example, the prime space of a typical shopping mall is often dedicated to such services as hair saloon and manicure. In Hong Kong, gyms have become increasingly important tenants for large and accessible space.

This shift to service retail is, first of all, a direct response to web retailing.

Web retailing is a classic example of a disruptive technology. A new business model that is perhaps inferior in some aspects gains an unassailable cost advantage, allowing the new model to outcompete the traditional model.

Web retailing has some drawbacks. For example, customers cannot first examine the goods before purchase and delivery is often delayed.

However, because web retailing does not require a retail shop front, web retailers are able to save on rent, and the savings can be used to improve logistics services and provide more discounts.

This cost advantage typically means that once web retailers manage through its logistics network and merchandizing strategies, they can be serious competitors in areas in which they choose to compete.

The key disadvantage with web retailing, however, is that it is largely restricted to goods.

Even when a leading local web retailing platform now offers discounted deals for restaurants and other services, the delivery of the services still take place in physical space.

This means selling services via the web is complementing a mall by providing an additional sales channel and, thus, driving traffic to the mall.

This is why mall operators are now pushing to enlarge their provision of services. A good service provider will drive traffic to the mall, increasing overall sales.

This is not a new development, as most malls and large department stores have, for decades, developed restaurant floors to draw in families during the weekend.

Sports-related services, such as gyms, sports medicine, and various training schools, fit well into this theme because once customers develop the habit of using these services, they have the incentive to make regular and predictable visits to the mall.

I, for example, visit a particular mall every week because my four-year-old son is taking football training classes over there.

In addition, the sporting culture will also increase the demand for sports-related goods, which may help Hong Kong to diversify from luxury brands and jewelry.

In Central, a former flagship store of a luxury brand has given way to an international sports brand.

Each individual piece of luxury good is several times the cost of sports goods, but the overall demand for sports goods is higher, given the wear and tear of sports-related merchandise.

The overall per-square-foot sales may not be that far off. The diversification into higher-end sports goods may help provide a stabilizer to Hong Kong’s high street retail.

Over a sufficiently long investment timeline, one advantage of real estate investment is that it does not require investors to closely monitor the rise and fall of individual industries.

As long as the overall economy remains healthy and the population continues to be entrepreneurial, new products, new companies and new business models will continue to be born and create demand for real estate.

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Chief Investment Officer, Admiral Investment Ltd.

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