Hong Kong's limited DIY market

Despite Hong Kong's large urban population and its sophisticated economy, there is little chance that the city will develop a traditional retail home improvement sector. This widely held view is shaped by Hong Kong's relatively small land mass and exorbitant real estate market, as well as its unique topography and building practices, which overwhelmingly favor tall apartment buildings at the expense of detached single-family houses.

But in Hong Kong, as in Manhattan or central Tokyo -- three large cities with minuscule levels of single-family homes -- residents still have home improvement needs and stores do exist there to serve those needs.

The center of Hong Kong's retail hardware and building materials industry can be found on a congested, exhaust-choked three-block stretch of Lockhart Road, in the city's Wanchai neighborhood. The strip is lined with around two dozen outlets including specialty tool shops, flooring centers, building material dealers, traditional hardware stores and two multileveled, multi-categoried home improvement bazaars.

"There is a DIY market here," said Yao Chan, a sales clerk with Nam Kee Building Materials Ltd., one of Lockhart Road's bigger outlets. "But it's unique and you can't compare it to other places." With so many stores located on the same block, each has had to develop a specialty to distinguish themselves, Yao said.

"People want to buy wood from a wood [specialist] and tools from a tool store," he explained. "They think all-in-one store is lower quality." The few home improvement malls on Lockhart Road are not single company enterprises, but several companies leasing space in the same building.

Shopping traditions may account for some of the market's challenges, but the real impediment is land. The lack of affordable real estate throughout the city affects every part of the home improvement market. Besides the obvious -- very few detached houses, expensive commercial leases, small stores -- the shortage also affects how retailers manage their businesses.

Dealers here, for example, pay life-and-death attention to turning inventory. They have to know which are the best-selling, quickest-turning products. A 100-square-meter (1,076-square-foot) store can't afford to clog up its shelves with non-movers. There's also a greater need for knowledgeable staff. With little room for display space, most products are kept in back rooms or behind counters. That means sales usually require personal attention.

"Every customer has questions, everyone needs help," Yao said.

Challenges to overcome

Hong Kong presents a major challenge to manufacturers and distributors as well. While the city has a rich manufacturing history, it was known more for suits and toys than for bulky items like cabinets or wood panels. These days, Hong Kong is a service-based economy which farms out much of its manufacturing to mainland China. For the home improvement manufacturers actually looking to set up shop here, space is the issue again.

"There is no warehousing here. Period," said Eric Mason, international sales director for U.S.-based Werner Ladder. "Our ladders are stored on the 11th floor of an office building. To get them up and down we have to find a way to fit them in an elevator." Mason recalled an order that Werner had to turn down because it was too large for its Hong Kong affiliate to handle.

All is not so bleak, however. There is new residential and commercial construction underway in Hong Kong's New Territories region, a large chunk of land that, unlike much of Hong Kong, is connected to the mainland. This development bodes well for dealers awaiting the formation of a new group of households and space-hungry manufacturers.

Another trend finds retailers doubling as wholesalers in an effort to earn some additional revenue by selling into mainland China.

"A few of these [Lockhart Road] stores have warehouses in the New Territories and they are sending trucks into Shenzhen everyday," said an electricals dealer who withheld his name. "They still have the store but their main business is becoming the wholesaling."


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