Unstaffed stores hard to develop in Hong Kong
Unmanned stores have been introduced to Hong Kong hoping to improve retailers' profit margins by reducing staff costs, while business insiders believe it may be difficult to expand their business in the short run because customers are not yet accustomed to this new shopping experience.
Amazon Go, unmanned store chain in the United States that has opened 2 stores, expects to open 6 more shops this year. There are two unmanned pop-up stores in Hong Kong that the business model is similar to Amazon Go, they are AlipayHK and Okashi Land. Both stores only operated around one month in September due to their pop-up store nature.
High rent and investment costs hinder development
The commonly known example of unstaffed stores in Hong Kong is the laundromat. Joseph Leung Wai-Fung, Vice Chairman of the Hong Kong Retail Technology Industry Association said many self-service laundries were opened in recent years. Since laundromats only provide a single service, customers can handle the service easily, while unmanned stores like Amazon Go require different technologies.
The biggest advantage of unmanned shops is savings on labour costs. However, labour cost is not the biggest operating cost of stores in Hong Kong.
“Radio Frequency Identification, Internet of things and security camera are some examples of technologies and infrastructures needed to be used in unmanned stores, but the investment cost is expensive as they have not been widely used today,” Leung said.
“High investment costs on technologies plus high rents in Hong Kong lead to a high operating cost of unmanned stores,” he said. “Only when retailers have economic incentives will they open such stores, but in fact, they don’t have. Unmanned stores are hard to develop in the short run.”
A report conducted by the Census and Statistics Department shows the cost structure of Hong Kong retail stores. The report reveals that rent and wages occupied 16.3 percent and 7.4 percent of the total operating cost, respectively.
According to Statista, an online statistics and market research portal of the United States, rent and wages accounted for 4.8 percent and 13 percent of the total operating cost of shops in the US, respectively.
Rents account for the largest portion of retailers' operating cost in Hong Kong, while labour cost in the United States ranges the top among all elements of operating costs.
Adding to big investments in technologies, the saving in labour cost by opening an unmanned store in Hong Kong might not be as big as those in the United States.
There are over 40 unmanned stores opened in China, hoping to reduce labour cost. But more than 10 of them have already shut down, media reports showed.
The main reason for shutting down the store is that the staff cost in China is not that expensive. Monthly salary of a cashier cost around RMB3,000 to RMB5,000 (about HK$3,419 to HK$5,698).
The investment cost on technologies such as sensors, security cameras and artificial intelligence will be a lot more than RMB5,000 a month.
Unmanned stores are not easy to develop as long as the investment cost or other costs, such as rents, that are bigger than labour cost.
Low incentives to adapt to financial technology
Unmanned stores are hard to develop as citizens not yet accustomed to this new shopping experience.
Tsoi Chung-Kin, Executive director of the Hong Kong Department Store and Commercial Staff General Union said senior citizens are not accustomed to wireless payments and new technologies in unstaffed store.
“I am curious about the store but I prefer to shop in a staffed store. I am too old to use the technology that I even don’t know how to enter the store without help,” said Ng Kin-Wah, a 65 years old shopper at Okashi Land.
“I will shop in unmanned stores. It is fresh and fun. However, I believe that paying with a cashier’s help will be faster as some people may not know how to do self-checkout,” said Timothy Sin, a 22 years old shopper at AlipayHK.
Tsoi added that some customers, especially older people, prefer face-to-face services rather than self-service. “Some customers chit-chat with the staff and make friends with them. Therefore, there is a feeling of intimacy when there is staff at the shop.”
He said that more people use mobile payment in recent years but its acceptance is still falling behind other countries.
“The mobile penetration rate in Hong Kong is up to 248 percent but contactless payment is still way behind,” he said. “Boosting the use of mobile payment helps unmanned stores develop as it is part of the store.”
Speaking of government support, Leung said the government did not take a lot of initiatives in promoting digital currency and building Hong Kong as a smart city.
Strong competitors drive unmanned store away
Retailers operating unmanned stores not only face high operating costs but also face strong competition.
According to the Grocery Market Study done by Consumer Council, the market share of the two largest supermarkets accounted for 62.5 percent. The finding shows that newcomers are hard to get into the retail industry.
“Nowadays, convenience stores are all around us. They sell diversified goods. People can get what they want within 15 to 30 minutes. What’s more, convenience stores are operating 24 hours a day,” said Leung.
He suggested that the only way for unmanned stores to attract customers was to sell unique goods. People could get different imported goods from supermarkets, convenience stores and online stores. It would be challenging to decide what goods to be sold in the stores.
Technologies used in current unstaffed stores need to refine
Timothy Sin shared his shopping experience at AlipayHK. He said the robotic coffee machine in the store failed him and the machine worked again with the help of a staff member.
“The technologies have not yet refined. There are around 10 staff members in such a small store. They help fix the technologies and customers problem,” he said.
Leung believes that the two unstaffed pop-up stores are just for testing the water while waiting for the technologies and the market to mature.
Salespersons are needed to boost sales and recommend the right products or provide services to customers. Unmanned stores lack these human interactions.
Tsoi said traditional stores cannot be fully replaced by unmanned stores yet. “Sales revenue of some retail stores with promotors can gain HK$100,000 to HK$200,000 more than stores without promotors.”
《The Young Financial Post 新報人財經》