Since March 2020, the coronavirus epidemic has spread rapidly to most parts of the world, bringing a full blow to the global and local economies. According to the "Economic Report for the Third Quarter of 2020", the overall performance of the Hong Kong economy improved slightly in the third quarter, but the domestic demand remained weak. The Census and Statistics Department announced earlier that in November 2020, retail sales fell by 4% year-on-year, of which the value of sales of "jewelry, watches & clock and precious gifts" fell by 16.1%. With the fourth wave of the epidemic in Hong Kong and the suspension of "Employment Support Scheme" in November 2020, it is expected that enterprises might lay off employees, the labor market would further deteriorate, and the local economy would still be facing uncertainties.
Performances of Jewellery, Watch and Clock and Optical Industries
As the epidemic is still not under control, many countries have implemented customs closures and suspended non-essential commercial activities, causing manufacturers including product wholesalers to slow down their production lines or even face a complete suspension, which have seriously affected their business development. In addition, exhibitors have moved their exhibitions online as physical exhibitions have been completely suspended. Such new transaction mode allowed overseas buyers and exhibitors to conduct business transactions through online platforms, yet diminished physically catch-up. Manufacturers and product wholesalers have to face and solve technical problems to reach their potential customers through this online trading platform.
Under the epidemic, travelling to Hong Kong has been completely suspended. The local retail businesses of the jewellery and watch & clock sectors have experienced a catastrophic impact. The performances of luxury goods market in Hong Kong and Macau became the worst. Taking the retail business in jewellery as an example, luxury jewellery retailers could only promote products to regular customers through live broadcasts or product videos.
In the optical industry, eyeglasses and its accessories (such as sunglasses) are not only trendy products but also necessities. For the local optical retail sector, there is an increasing demand for optical products as a safety device to prevent COVID-19. For the optical manufacturing sector, the global supply and demand of optical products have also been largely affected by the epidemic, particularly to exporters of original equipment manufacturing (OEM).
Since 2018, Sino-US trade conflicts have intensified. Following the implementation of the "National Security Law" by the Central Government in Hong Kong since July 2020, the US has terminated Hong Kong's differential treatment and required the import of Hong Kong made products to the US to be re-labelled as “Made in China”. Such measures have affected the sectors of jewellery and optical manufacturing sectors. Escalated tariffs on some jewellery and optical products originated from the Mainland for the imports to the US are required. To avoid paying additional tariffs, some buyers have even requested jewellery manufacturers to produce the products at other regions and explore the possibility of shifting production line at other regions. On the contrary, the aforementioned measures from the US have not much impact on the watch manufacturing sector as the US Customs stipulated that watch products must be marked with the country of origin, and the origin of movements must also be clearly displayed on the surface or the case back of the watches. Therefore, Hong Kong watch products can continue to claim as "Hong Kong" as the place of origin according to the requirements of the US Customs.
Retail of Jewellery, Watch & Clock and Optical Products
Over the past years, the retail sectors of jewellery and watch & clock had expanded retail outlets excessively. Affected by the epidemic, they started to restructure the network of the outlets and adjust the number of staffing as well as changing the nature of the outlets to further enhance the customer experience. Looking forward, the sectors expect less manpower to support future retail operation.
Regarding the product trend, young consumers increasingly emphasise on personalised styles and in favor of traditional handicrafts. The “design of personalised products" has become a major trend. For the jewellery industry, jewellery products have become one of the daily accessories to showcase personal style, and jewellery design is also increasingly influenced by the fashion trend. For the watch and clock industry, it is suggested that more innovative ideas should be injected such as crossover with fashion brands to introduce "limited edition" to increase product variety. In addition, “smart watch” with healthtech remains one of the popular categories. For the optical industry, some local manufacturers have seized the opportunity to expand businesses of original brands, and a number of large-scale optical enterprises have also further expanded to the Mainland market.
Changes in Logistics Supply Chain
The epidemic has also caused a dramatic change to the global logistics supply chain and its new business model and development strategy. One of the main directions is to accelerate “digital transformation” in the jewellery, watch & clock and optical industries to sustain business development. Transformation involves the changes of supply chains including production lines and cargo transportation, operation costs, product promotions without geographical restrictions, customer experience and their shopping habits. The challenges in supply chain management informs the importance of establishing a “sustainable trust” supply chain partnership between suppliers and logistics providers to make logistics smoother. In terms of cargo transportation, enterprises should also explore the feasibility of sharing transportation resources within the industry which can help reduce the operation costs and make logistics arrangements more flexible.
Online Sales and Promotion
Under the influence of the epidemic, some large-scale product retailers have not only strengthened the application of big data to analyse the patterns of customer consumption, but also used artificial intelligence and augmented reality technologies to develop applications to provide customers with different experiences and more "personalised" products and services.
The epidemic has also led the industries to the extensive use of e-commerce, social media (such as Facebook and Instagram) and online shopping platforms (such as Tmall, JD, Alibaba and Amazon) as the major sales and promotion channels, mainly targeting the low to and medium-priced products as well as fashionable products. The sales of these products have significantly increased. Major luxury jewellery, watch and clock brands have also actively engaged online channels to sales and promotion so as to make up for the decline of sales at physical store during the epidemic. For the optical industry, a number of local optical brands and designers have launched e-commerce websites. To strengthen the connections with local and overseas customers, some local designer brands also use these online channels to sell their products.
Among various digital marketing strategies, product promotion by key opinion leaders (KOL)/YouTubers has become a major sales and promotion channel chose by enterprises. Some retailers even encourage or require their frontline staff (such as sales representatives) to conduct regular live streaming or video broadcasts via smartphones to promote products and answer inquiries from customers in real time. To strengthen the competitiveness of the Hong Kong market, the industries should regularly make reference to the latest development of e-commerce, online shopping and social media platforms (including KOL) for sales and promotions in the Mainland.
Offline Sales and Promotion
Regarding the sales of high-end product in precious jewellery and premium watches, consumers generally incline to visit and purchase at physical stores to enjoy receiving a detailed introduction of the features and functions of luxury products from professional sales representatives. Generally, e-commerce and physical stores can become omni-channel for sales and promotions, which is able to complement each other to foster further business growth in the long run.