U Select shuts stores as shoppers head north

Bloomberg and staff reporter

Hong Kong's third-largest supermarket chain U Select, run by state-owned conglomerate China Resources Holdings, has almost halved its network in less than a year as city's retailers struggle with economic headwinds and residents flock across the border for cheaper shopping.

The chain, which expanded rapidly during Covid and had around 100 stores in Hong Kong, shut down dozens of money-losing branches as the economy slowed and consumer sentiment deteriorated, according to people familiar with the matter.

U Select's abrupt strategy shift highlights how optimism about Hong Kong's post-pandemic reopening quickly turned into a reckoning over the SAR's declining appeal.

While months of social unrest in 2019 and three years of strict Covid control fueled an exodus of expatriate and local professionals, the economic slowdown and weakening yuan are sending record numbers of residents to mainland China for cheaper food and entertainment.

It is not just U Select. Sales at Hong Kong's supermarkets plunged 14 percent year-over-year in January and have been in decline for 18 consecutive months, the longest stretch since record-keeping began in October 2005, according to administration's statistics. Officials will release February data later this month.

By contrast, warehouse-style, membership supermarket chains across the border like Costco Wholesale and Walmart's Sam's Club have become increasingly popular. Tens of thousands of people - many from Hong Kong - lined up for more than three hours in January to enter a newly opened Costco in the neighboring tech hub of Shenzhen.

During the economic recession and the period of eased global inflation, retailers are seeking to invest more in price-cutting strategies in pursuit of better growth.

IKEA aims to cut the prices back to the 2022 levels in all its markets, citing the thinner personal budget, Tolga Oncu, head of retail at Inkga Group, said.

The move, launched in Europe in September, has proven successful, with Ingka having allocated over EUR1 billion (HK$8.5 billion) in price cuts between September and November 2023, and will expand to all global markets in 2024.

Despite geopolitical risks in the Red Sea affecting cargo diversion, IKEA remains resilient, stating it is well-equipped to continue decreasing prices globally.