Hong Kong-based Sky Connection Limited/Anway Limited is displaying resilience in the face of business disruption linked to increasingly antagonistic and violent skirmishes between anti-government protestors and authorities.

In a candid interview with TRBusiness recently, Simon Au, Chief Executive, Sky Connection/Anway admitted: “Business is tough. At the moment we are being hit hard by the Hong Kong incident.

“The Mainland Chinese business [has] dropped by half in the past two months. We hope the incident will stop in the not-too-distant future.”

Sky Connection’s major concessions are rooted at the Mass Transit Railway (MTR) Corporation stations at Lok Ma Chau and Lo Wu/Hung Hom, where it renewed five-year contracts in August 2017 and early 2018, respectively.

PRE-ORDER AT LOK MA CHAU

The retail operations include one departure shop (8,000sq ft) and two arrivals stores (600sq ft each) at Lo Wu, plus two departure shops (8,000sq ft each) and two arrivals shops (3,000sq ft each) at Lok Ma Chau.

Both locations have recently undergone renovations. At Lo Wu specifically, this included expanding the liquor section.

The MTR stations are situated on the Hong Kong-Shenzhen (Mainland China) border-crossing spur, with 80% of the business accounted for by Hong Kong citizens – mainly commuters – and 20% by Mainland Chinese.

Sky Connection also runs one departure and one arrivals outlet at Hung Hom station.

To mitigate against the impact on sales in Hong Kong, Sky Connection introduced a new departures pre-order service at Lok Ma Chau at the end of May and has widened merchandise assortments beyond its anchor tobacco and liquor categories to encompass necessities such as beauty products, foodstuffs and medicines, supported by focused promotions.

“At the moment, a lot of Mainland Chinese make short day trips to Hong Kong and shop,” explained Au. “We need to compete and every cent counts. In September, we generated close to HK$2 million just for these kind of products.”

In addition, Sky Connection has been maximising revenue through its proprietary ‘Free Duty’ WeChat account, which boasts more than 40,000 followers, to highlight offers and promotions.

“We are still confident that despite the protests today, we can generate more than HK$2million per month and this will be a constant income for us,” commented Au. “Shoppers collecting their [pre-order] shopping bags are also increasing footfall for the shop.”

A YEAR OF TWO HALVES

This year appears to have been a mixed blessing for the firm. While the first five months (January to May) yielded single-digit growth, June marked the start of a gradual decline, according to Au.

“We expect if this [HK] incident continues, we will drop by double-digit in terms of sales,” said Au.

Confrontations between police and pro-democracy demonstrators in Hong Kong have continued despite beleaguered Chief Executive Carrie Lam scrapping the controversial Extradition Bill in September.

Separately, as reported by TRBusiness in the *TFWA China’s Century Conference delegate magazine published earlier this year, the emergence of the high-speed Hong Kong Express Rail Link (XLR) connecting West Kowloon to the Shenzhen/Hong Kong border where it joins the mainland rail connection has also proved a headache for Sky Connection.

Dufry Group won a five-year contract last year to operate departures (1,200sq m) and arrivals (300sq m) shops.

“It took away from us some of the long-haul travellers,” said Au. “Before, as there was no high-speed rail, some [travellers] may pass through Lok Ma Chau or Lo Wu and take the MTR subway to the high-speed rail station in north Shenzhen. That would link to all cities in China.”

After being promoted from Merchandising & Buying Director to CEO of Sky Connection/Anway in May, succeeding Baker Salleh, Au tells TRBusiness he embarked on setting out a clear mandate for the company’s growth.

The first objective was to ensure it remained a leading liquor and tobacco retailer, and secondly to focus more on Mainland Chinese travellers’ demands by providing beauty, medicines and foodstuffs as mentioned above.

Of particular note in the past 12 months has been a five-year contract victory to operate a 3,229sq ft departure duty free store on the Hong Kong side of the Hong Kong-Zhuhai-Macau Bridge.

“It opened in December [2018] and took two months to get the licence,” said Au.

“It was fully operational from February. We went through Easter and had a record month in July, despite 20% lower pax as there were demonstrations [in Hong Kong].

“We managed to recruit a sales team and they are really happy to work in the environment as the compensation is generous and we give them good training. We would like to do more interactive promotions through WEChat and ecommerce.”

CONTRACT TRANSITION AT MACAU

Meanwhile at Macau International Airport (MIA), Au says the Sky/Shilla Duty Free concessions have yielded double-digit growth this year.

TRBusiness understands the Sky/Shilla operation benefitted in the early stages from the start of the new King Power Macau and China Duty Free Group Southside concessions, won by the joint venture in May last year, as it worked through some administrative processes such as establishing bonded warehouse operations.

King Power Macau resigned its five-year concession in January 2018, but then decided to re-bid for the concession in partnership with China Duty Free Group.

Meanwhile, The Shilla Duty Free alone captured the MIA North Departure Level Airside concession at the Passenger Terminal Building earlier this month, ending Sky Connection’s association with the airport. A RFP was issued in May.

Sky Connection had worked in partnership with The Shilla Duty Free (Sky/Shilla Duty Free) in a joint venture as part of a dual operator model with King Power Macau since 2014.

The Sky/Shilla Duty Free partnership officially ended on 6 November, paving the way for the commencement of The Shilla Duty Free’s new five-year contract on 7 November.

This covers a range of shops and kiosks measuring approximately 1,122sq m at the North Departure Level Airside of the Passenger Terminal Building.

*TRBusiness was selected again as the official media partner and publisher of the TFWA China’s Century Conference. This year’s event took place on the island of Hainan, China from the 5-7 March.