Makeover for HK's prime shopping districts as luxury stores exit (updated)

Swire Properties

02/08/2016 13:50

* Luxury sales lead decline in HK retail sales this year 
    * Mass market retailers take prime spots as luxury shops 
exit 
    * Trend seen continuing as discounts fail to boost luxury 
sales 
 
 (Adds retail sales data) 
    By Donny Kwok 
    HONG KONG, Aug 2 (Reuters) - From fast fashion chain H&M 
 HMb.ST  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 $60 billion retail industry, part a major makeover 
the city is going through amid a slump in retail sales. 
    "This trend will continue," said 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 its 
16th straight month drop in retail sales, hurt by a continued 
drop in mainland tourist numbers and weak local spending. 
 L4N1AF2GB  
    Sales of jewellery, watches and valuable gifts tumbled 21 
percent in January-May this year, driving a 10.8 percent fall in 
overall retail sales, while cosmetics and medicines posted a 2.7 
percent sales decline, and furniture and fixtures reported 5.3 
percent drop, the government data showed.  
    Luxury retail in Hong Kong exploded over the past decade as 
increasingly wealthy mainland Chinese flocked to the city to buy 
high-end Western brands, pushing out the local jewellers and 
other shops that once dominated the high street.  
    "Back in the day we only used to see (jewellers) Chow Tai 
Fook, Luk Fook, and pharmacies," said 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 the 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 Kevin Lai, an economist at Daiwa 
Capital Markets in Hong Kong. 
    "The luxury sector usually has much more value added," Lai 
said. "So these guys may not be able to do exactly the same in 
terms of delivering value." 
     
    RENT REDUCTION 
    Retail rents in Hong Kong's core shopping districts, still 
among the world's highest, are likely to fall another 5-8 
percent in the second half of this year, bringing the full-year 
correction to 10-15 percent, according to CBRE. 
    Those declines are attracting new tenants to shops large and 
small.   
    On Russell Street in the prime Causeway Bay shopping 
district, the 400 square feet space jewellery group Follie 
Follie occupied has been replaced by footwear outlet Joy & 
Mario, while Swatch Group's  UHR.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  ADSGn.DE  last year leased a 
13,000-square foot shop in the city for 22 percent less than its 
former occupier, Coach Inc  COH.N , as the U.S. premier brand 
closed its four-storey flagship store in Central amid weak 
retail sentiment and a drop-off in tourist arrivals from 
mainland 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'  1972.HK  Pacific Place, where British 
fashion house Burberry  BRBY.L  will halve the size of its store 
by 2017, 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 prime shopping district, and is planning to relocate its shop 
in Tsim Sha Tsui this year to a location with much better 
traffic. 
     
    FURTHER RESHUFFLE 
    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 had kicked off their 
summer sales much earlier than before and offering a much higher 
discount than they normally did," 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 percent on selected items, while Coach cut some 
prices by half, in line with moves by Burberry and French luxury 
group Kering's  PRTP.PA  Gucci. 
    "The spending pattern of mainland tourists had changed and 
their consumption power is weakening," Cheng said, forecasting a 
double digit decline in June retail sales. 
    ($1 = 7.7558 Hong Kong dollars) 
 
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Graphic on Hong Kong retail sales    http://link.reuters.com/qur53w 
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 (Additional reporting by Farah Master in HONG KONG and Mia 
Shanley in STOCKHOLM; Writing by Miyoung Kim; Editing by Lincoln 
Feast and Louise Heavens) 
 ((miyoung.kim@thomsonreuters.com; 65 6870 3026; Reuters 
Messaging: miyoung.kim.thomsonreuters.com@reuters.net)) 
 
Keywords: HONGKONG RETAIL/