Retail sales in Hong Kong are expected to drop by 5% to HK$460bn this year, according to a new report that recommends retailers there and in mainland China should do more to focus on customer experience.

Professional services firm PwC previously forecast that retail sales in the territory would fall 3% in 2019, but its downgrade reflects a weaker outlook for the second half of the year.

According to its report, entitled Back to the core: Reinvigorate experience-driven retail at a time of uncertainty – itself based partly on findings from PwC’s Global Consumer Insights Survey 2019 – that is because of the China-US trade dispute and its ripple effect on financial markets and consumer sentiment.

“Hong Kong retail sales is estimated to fall by 5% to approximately HK$460bn this year, as the ongoing Sino-US trade dispute, equity market turbulence and volatility of Renminbi continue to cast a long shadow on consumers’ sentiment and actual spending,” said Michael Cheng, PwC’s Asia Pacific and Hong Kong/China consumer markets leader, in comments reported by Inside Retail Hong Kong.

“Local retail sales and mainland tourist arrivals are expected to continue on a downward trend through the rest of this year, indicating a slowing consumer market in Hong Kong,” he added.

Cheng predicted that the important electrical and luxury goods categories are set to shrink further, although the outlook is rosier for the health and beauty segment, which is expected to “hold well” with modest growth.

However, “a weakening economy as well as uncertainty surrounding the trade dispute present risks to the outlook in the medium to longer run,” Cheng added.

2019 is also likely to be a “challenging” year for retailers on the Chinese mainland, where retail sales fell to a 15-year low of 9% last year.

To meet the challenge, PwC told retailers in both Hong Kong and the mainland that “front-end excellence alone is not enough to succeed in today’s new retail battlefield” and that they need to make customer experience part of their winning strategy.

This could include experience-driven “retailainment” to make shopping more engaging for consumers, for example, as well as better use of digital technology and data.

“Specifically, retailers need to map out their consumers’ purchase journey, isolate key customer touch points and factors that drive experiential moments, and invest more in aspects which directly impact those interactions and yield measurement results,” the report said.

Sourced from PwC, Inside Retail Asia; additional content by WARC staff