Gucci tangles with Hong Kong landlords

Retailers such as Burberry Group Plc, Kering SA and Chow Tai Fook Jewellery Group Ltd. are pushing landlords to lower rents on existing properties as luxury brands scale back on declining traffic.

Commercial rents have dropped the most this year since 2009 amid plummeting sales.

Hong Kong’s Russell Street in Causeway Bay used to boast the world’s highest retail rents, but it relinquished the top post to New York’s Fifth Avenue last year, Bloomberg News reported.

TAG Heuer closed its Russell Street store last week, citing high rents and declining traffic.

Kering, owner of the Gucci brand, has also warned that it may close some of its shops in Hong Kong if rents don’t come down.

“Many landlords have not necessarily understood that the markets have changed,” Kering chief financial officer Jean-Marc Duplaix was quoted as saying.

China’s economic slowdown and President Xi Jinping’s austerity and anti-corruption campaigns are among the reasons for the declining number of mainland shoppers in the city.

Demand has also plunged because the weaker yen and euro have prompted Chinese tourists to favor Japan and France over the city, the news agency said, citing Helen Mak, senior director of research at Colliers International.

“Unavoidably rents will trend down,” said Marcos Chan, head of research for Hong Kong, Macau and Taiwan at CBRE Group Inc. “We don’t see any reason why retail will quickly see a rebound any time soon.”

Sales of jewelry, watches and other high-priced gifts fell 15.9 percent in the year ending June, according to data from the Hong Kong Retail Management Association.

In a July research report, Jones Lange LaSalle Inc. said high-street rents will drop 15 percent to 20 percent this year, which is far worse than the 5 percent drop it predicted at the end of last year.

Street-level landlords in Central on Hong Kong Island, and across the harbor in Kowloon neighborhoods that cater to mainland shoppers, are also feeling the pressure.

Average rents fell 15 percent in Tsim Sha Tsui in the first half, Colliers said.