Deep Dive: Shenzhen’s megastores attracting shoppers eager for bargains – can Hong Kong retailers compete?

Earlier this month, thousands of bargain hunters went to the opening day of the Costco megastore in Shenzhen’s Longhua district; many of them came from Hong Kong. Long queues formed outside on January 12 well before it opened at 8.30am, and staff members were handing out free water to people waiting in line.

Hongkonger Carol Ng and her husband arrived at around 10.30am and queued for two hours before they got in. “We bought a lot of fruit, bread and snacks for the children today because Lunar New Year is coming soon,” she said.

Ng is 66 years old and has retired. She spent between HK$600 and HK$700 on products, which she estimated would have cost about HK$2,000 in Hong Kong. She added that she often signed up for tour groups to shop at Sam’s Club, another warehouse-style store in Shenzhen that is owned by the American supermarket, Walmart.

Products taken from the shelves included food, daily supplies and luxury goods, including handbags, watches and jewellery.

Philip Lau, 35, said he made the trip to find deals on daily necessities. “Hongkongers like to explore new things,” said Lau, who runs an online store. “I’ll buy some basic needs like food or washing powder. I think usually they will be at least 30 per cent cheaper on the mainland than in Hong Kong.”

The Shenzhen store is Costco’s first one in south China and the sixth on the mainland. The branch has four storeys and a floor area of 44,500 square metres; it sells about 4,000 brand-name products from Chinese and international manufacturers.

Members-only bulk retailers across the border have become popular among Hongkongers because of the cheap deals they offer. This has even sparked a trend among city travel agents, whose itineraries now include shopping sessions at these stores. This caters to Hongkongers who are excited to shop over the border.
Staff writers

Question prompts:

1. What sorts of items can be found in Costco’s Shenzhen megastore?
(1) breakfast items
(2) daily essentials
(3) handbags
(4) necklaces and earring

A. (1), (2) and (3) only
B. (2), (3) and (4) only
C. (4), (3) and (1) only
D. all of the above

2. Based on News, what do Costco and Sam’s Club have in common?

3. Explain how the opening of Costco and Sam’s Club has influenced tourism to Shenzhen. What is the reason for this? Explain using News and your own knowledge

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Question prompts:

1. Identify ONE point that stands out in the graph.

2. Using News, suggest an explanation for the point you identified in the previous answer.

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• Hong Kong retailers face stiff competition from Shenzhen megastores due to lower prices, wider variety, and the allure of new shopping experiences

• Industry experts say the city’s government needs to provide incentives to attract megastores and focus on promoting Hong Kong’s unique East-West culture

Retail sector experts have urged Hong Kong authorities to offer incentives to attract megastores to set up in the city – or risk losing out to Shenzhen.

Baniel Cheung Tin-sau, an adjunct assistant professor at the University of Hong Kong’s business school, said: “Hongkongers like to chase bargains and the cheap deals available through warehouse shopping are definitely a lure. The goods in Sam’s Club are on average over 10 per cent cheaper than in Hong Kong with some even cheaper by half.”

Having visited Sam’s Club in Shenzhen and some Costco stores in Japan, he added: “The megastores provide massive shopping space not seen in Hong Kong. Hongkongers like new experiences and easily fall for trends. All these have contributed to this growing phenomenon.”

Cheung said Hong Kong’s sky-high rents made it hard to woo such megastores to the city without government incentives. Some of these incentives include land and transport infrastructure.

The stronger Hong Kong dollar against the yuan has also helped make shopping across the border more attractive.

Wholesale and retail sector lawmaker Peter Shiu Ka-fai urged the government to bring more foreign labour into the city to reduce labour costs. He also recommended resuming the multiple-entry visa scheme for mainlanders to visit Hong Kong.

“Hong Kong still has its own attractiveness such as its genuine goods with copyright protection and duty free products. The issue now is that we don’t have enough people coming to the city,” he said.

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Steve Huen Kwok-chuen’s EGL Tours takes two to three busloads of Hongkongers a day to popular megastores in Shenzhen. The tour operator said they eyed items not found at home, such as microwaveable burgers, as well as snacks like Mexican rolls, crab roe noodles and electrical appliances.

Huen said Hong Kong could not offer Shenzhen’s low prices, but it had to reshape its reputation as a shopping and gourmet paradise by promoting its unique fusion of East and West.

Timothy Chui Ting-pong, executive director of the Hong Kong Tourism Association, said the city had to improve its service quality to make visitors feel that shopping and dining in Hong Kong was value for money.

“Hong Kong can never beat Shenzhen in the price war. The only way to beat Shenzhen is to raise its service quality, so visitors will feel things are value for money here,” he said. “Just like in Japan, tourists never complain about its higher prices because they are happy with its service quality. This is the only way to retain customers.”
Staff writers

Question prompts:

1. What are some reasons locals choose warehouse shopping across the border over options in Hong Kong?
(1) Locals can find items that are not available in Hong Kong.
(2) The stronger Hong Kong dollar makes cross-border shopping attractive.
(3) Hongkongers like the novelty of new experiences.
(4) The items sold by these retailers are of better quality.

A. (1), (2) and (3) only
B. (2), (3) and (4) only
C. (4), (2) and (1) only
D. (4), (3) and (2) only

2. What challenges do Hong Kong retailers face in competing with Shenzhen megastores?

3. Different suggestions were proposed in Issue to attract shoppers to Hong Kong. Which of these do you think is most feasible? Explain using Issue and your own knowledge.

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Question prompts:

1. What trend is the woman in the illustration supposed to represent, and what is she doing?

2. According to Issue, which groups could be negatively affected by this trend, and why?

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• Costco: an American operator of discount stores. It is known as a warehouse club or wholesale club, where people pay a yearly membership fee to buy bulk quantities of merchandise that is sold at discounted prices. Costco is one of the largest retailers in the world.

• megastore: a very large store that sells many different products. Megastores have operated in Hong Kong in the past. GrandMart Warehouse Club was the city’s first discount warehouse-style membership store; it opened in 1993, expanded quickly to have seven branches, but closed suddenly in 1998. An outlet shopping centre, San Tin Shopping City, operated near the Shenzhen border for more than three years before it closed in 2022.

• Sam’s Club: an American membership warehouse retailer that opened its first mainland outlet in Shenzhen more than 27 years ago and currently has four megastores there. It operates in a way that is similar to Costco.

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News
1. Answer: D
2. They are both warehouse-style stores that offer a wide range of items at discounted prices that are much cheaper than the ones sold in Hong Kong.
3. Hongkongers have flocked to visit Shenzhen, and tour guides are now offering stops at these bulk retailers. This is because the prices are much cheaper in Shenzhen than they are in Hong Kong, and because Hongkongers like trying new things.

Chart
1. There is a spike in Google online searches for “Costco” on January 12.
2. Hongkongers went online to find out more about Costco’s new Shenzhen before and on its opening day, perhaps so they could make plans to visit the megastore.

Issue
1. Answer: A
2. Shenzhen megastores, like Sam’s Club, offer goods significantly cheaper than those in Hong Kong due to factors like lower rent and labor costs. Sky-high rents in Hong Kong also make it challenging for similar megastores to operate or offer competitive prices.
3. Emphasising and enhancing Hong Kong’s unique appeal by leveraging the city’s strengths like genuine goods, duty-free options, and the East-West cultural mix. Tourists and locals alike are drawn to Hong Kong for its cultural blend, culinary scene, and overall atmosphere. Emphasising and promoting these factors can set it apart from Shenzhen’s focus on bulk bargains. It also focuses on value perception, potentially attracting shoppers who are willing to splurge on quality goods and seek a distinct experience beyond just price. (accept other reasonable answers)

Cartoon
1. She is a Hongkonger crossing the border to shop in mainland China.
2. Small businesses and local manufacturers in Hong Kong. This decline in local shopping could directly impact smaller shops and traditional retailers in Hong Kong, potentially leading to loss of business and even closures.