A man stands outside a store in one of Shanghai's busiest streets. As local business have a leading edge in bricks and mortar retail outlets, Hong Kong companies should stand a better chance in e-commerce. Qilai Shen / Bloomberg

For Hong Kong companies contemplating a venture into Shanghai, e-commerce is viewed as a top choice, economists from Hong Kong Trade Development Council (HKTDC) Shanghai office say.

Retail sales outside of "bricks and mortar" retail outlets in Shanghai showed a year-on-year increase of 57.3 percent during the first half of 2012. Online retail sales soared 90.2 percent. Over the same period, retail sales of consumer goods from all sources, increased only 9.4 percent, according to HKTDC's research.

HKTDC has set up 11 offices on the mainland to carry out analytical studies that can serve Hong Kong companies and create a tighter fit between Hong Kong and the mainland in terms of trade, according to Brian Ng, director of HKTDC mainland.

Under the pressure of rising costs, high rent, slowing market demand and intense competition, traditional commerce is being challenged from all sides by e-commerce.

A survey released by property consultant DTZ on Nov 15 shows that property rents in the five monitored business districts of Shanghai rose by 1.5 percent to 57.83 yuan ($9.11) per square meter every day, during the third quarter of 2012.

"For Hong Kong companies intending to venture into Shanghai, e-commerce and other non-store modes of operation are options that allow them to overcome the disadvantages of not possessing the best locations," said Qi Xiaozhai, special correspondent of HKTDC Research Shanghai, who's also a researcher with the Shanghai Commercial Economic Research Center.

"These new forms of operation also promise great potential. Since Shanghai's commerce is lacking in product variety, Hong Kong e-tailers should be able to find plenty of opportunities to bring new dimensions in sales to the city," he said.

While Shanghai commercial enterprises have many advantages, including ownership of premium retail outlets (location, location, location), lower operating costs and market familiarity give Hong Kong retailers many advantages, such as economies of scale, capital backing, international channels of distribution, international management expertise, brands and patents, Qi explained.

It is true that the number of outlets and locations remain primary strengths in retail. Shanghai's local commercial enterprises have a leading edge there. On the other hand, TV marketing, e-commerce, mail order and other types of off-premises retailing have no need for outlets and good locations. Hong Kong companies should stand a better chance to bring their advantages into play.

Nevertheless, it should not be assumed that traditional retail shops are fading to extinction. Retail outlets still have some assets that e-commerce simply cannot replace, according to Vincent Digonnet, president Asia Pacific of Razorfish, one of the world's largest interactive agencies, and also part of the Publicis Group.

"For some of the stores on Huaihai Road, if you look at how much they sell on a good day, the price of rent, staff cost and everything else - a lot of them don't make money. So someone may say, 'Well, they don't make money, why not close them down?' But if you look at it another way, the cost of a billboard on Huaihai Road 365 days a year, would be a huge amount of money. Therefore, while sales may not cover store operations of the stores, when the value of the shop window is taken into account, all of a sudden you will realize it is worth the money," said Digonnet.

"Sometimes when you go to stores, the experience may not be very pleasant. You have to queue to pay. Imagine you are building e-commerce capability in the store, you walk into the store, the sales attendant is carrying a tablet (computer), you show the attendant what you want on the tablet with you full profile, you pay and you walk out. And then the things are delivered to your home. You can have the store experience, touching the fabrics, but at the same time, you have all the benefits of e-commerce to make it quicker smoother," he added.

E-commerce then would merge with traditional shopping and but will enhance the experience. A good combination of the two will let brick and mortar retailers extend their sales floors beyond the front door. Consumers, for example will be able to mix a real dressing room with a virtual dressing rooms in real time, inviting their social network to participate in their store experience, Digonnet added.

What people are looking for is better experience. For luxury brands and high quality products, that will be a real benefit, he stressed.

"E-commerce platforms are brand builders. If you build e-commerce platform, you can bring hundreds of people coming in at the same time, which cannot be achieved by retail stores by all means," he said.

shijing@chinadaily.com.cn

(HK Edition 12/04/2012 page4)