High street brands replace luxury stores that exit HK prime space
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From fast-fashion chain H&M to lifestyle brand Maison Kitsune and cosmetics firm Innisfree, mass-market retailers are setting up shop in premises previously occupied by luxury brands in Hong Kong’s prime shopping districts.
Aided by falling rents in top locations, accessory, sport and lifestyle retailers are emerging as a new driving force of Hong Kong’s US$60-billion (S$80.4-billion) retail industry, part of a major makeover the city is going through amid a slump in retail sales.
“This trend will continue,” said Mr Joe Lin, executive director at property consultant CBRE. “We are going to see more mass-market brands reappear in prime locations.”
Weak sales of luxury goods drove Hong Kong to report a 16th straight monthly drop in retail sales on Tuesday.
Sales of jewellery, watches and valuable gifts tumbled 21 per cent in January to May, driving a 10.8 per cent fall in overall retail sales, while cosmetics and medicines posted a 2.7 per cent sales decline and furniture and fixtures reported a 5.3 per cent drop, government data showed.
Luxury retail in Hong Kong exploded over the past decade as increasingly wealthy Chinese flocked to the city to buy high-end Western brands, pushing out local jewellers and other shops that once dominated the high street.
“Back in the day, we used to see only (jewellers) Chow Tai Fook, Luk Fook and pharmacies,” said Ms Cynthia Ng, director of retail services of Colliers International.
“They (new retailers) are not necessarily local brands, but tend to be cheaper in pricing and younger… Not only does the adjusted rental fit their budget, but at the same time the craze and demand for fitness and sports are also helping them.”
Still, mass-market brands might struggle to achieve the margins and profitability needed to justify prime rents in a weak retail environment, said Mr Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong.
“The luxury sector usually has much more value added,” Mr Lai added. “So these guys may not be able to do exactly the same.”
Retail rents in Hong Kong’s core shopping districts, still among the world’s highest, are likely to fall another 5 to 8 per cent in the second half of this year, bringing the full-year correction to 10 to 15 per cent, said CBRE.
Those declines are attracting new tenants to shops large and small.
“We are going to see more mass-market brands reappear in prime locations.”
On Russell Street in the prime Causeway Bay shopping district, the 400 sq ft space that jewellery group Follie Follie occupied has been replaced by footwear outlet Joy & Mario, while Swatch Group’s Jaquet Droz luxury watch shop has gone to South Korean cosmetics brand Innisfree.
Nearby, H&M opened a flagship store last year.
“For us, best location is always key, and when opportunities arise, we look at the possibilities for opening new stores,” a spokesman for H&M in Stockholm said.
Sports brand Adidas last year leased a 13,000 sq ft shop in the city for 22 per cent less than its former occupier, Coach, as the premier American brand closed its fourstorey flagship store in Central amid weak retail sentiment and a drop in tourist arrivals from China.
Big shopping malls are renovating and offering attractive terms as vacancies grow, and stores on street level have also become more affordable.
Swire Properties’ Pacific Place, where British fashion house Burberry will halve the size of its store by next year, is reshuffling its tenant mix, bringing in more food and beverage stores.
Lifestyle store Homeless recently opened a store in CityPlaza shopping mall, after years of effort to secure a place in a prime shopping district, and is planning to relocate its shop in Tsim Sha Tsui this year to a location with much better traffic.
Retail and property experts see the trend continuing as sales of luxury goods remain weak, despite steep discounts.
“In the second half of May, many brands kicked off their summer sales much earlier than before, offering much higher discounts than they normally did,” Mr Thomson Cheng, chairman of Hong Kong Retail Management Association. “It failed to significantly boost sales. The situation is worrying.”
In early June, French fashion house Chanel slashed prices by as much as 70 per cent on selected items, while Coach cut some prices by half, in line with moves by Burberry and French luxury group Kering’s Gucci.
“The spending pattern of mainland tourists has changed and their consumption power is weakening,” Mr Cheng said.
Questions & Answers
Q.What factors are contributing to the shift from luxury brands to mass-market retailers in Hong Kong's prime shopping districts?
What factors are contributing to the shift from luxury brands to mass-market retailers in Hong Kong's prime shopping districts?
Falling rents in top locations, a slump in retail sales, and weakening spending power among mainland tourists are driving the shift. There is also increasing demand for fitness and sports-related goods.
Q.What evidence is there that luxury brands are struggling in the Hong Kong market?
What evidence is there that luxury brands are struggling in the Hong Kong market?
Hong Kong has seen a 16th consecutive monthly drop in retail sales, with jewellery, watches, and valuable gifts falling 21 per cent. Brands like Chanel and Coach have significantly slashed prices, but this has not boosted sales.
Q.Are there concerns about the long-term viability of mass-market brands in these prime locations?
Are there concerns about the long-term viability of mass-market brands in these prime locations?
Yes, an economist notes that mass-market brands might struggle to achieve the necessary margins and profitability to justify prime rents in a weak retail environment, as the luxury sector typically has more added value.
Q.Which specific luxury brands have either reduced their footprint or completely left prime Hong Kong locations?
Which specific luxury brands have either reduced their footprint or completely left prime Hong Kong locations?
Follie Follie, Jaquet Droz, and Coach have vacated spaces, while Burberry plans to halve the size of its store in Pacific Place.