By Frances Sit and Adam Xu at The Standard
Retail rents in prime areas are under renewed pressure as high-end fashion brands feeling the pain of lackluster consumer sentiment and falling numbers of mainland shoppers seek rent cuts.
Business is getting tougher for Hong Kong’s retailers with the value of total retail sales dipping 1.6 percent in the first half of 2015 from a year back, according to the Census and Statistics Department’s latest data.
Valuable gifts, including jewelry, watches and luxury goods, were hardest hit, with sales falling for 10 consecutive months. Sales value slumped 10.4 percent in June compared with a year earlier, despite efforts by several luxury brands – including Italian fashion house Prada – to boost sales by cutting prices.
Squeezed by slimmer pickings in Hong Kong and the mainland market, top global luxury brands are looking to renegotiate store rents to cut costs.
The latest to plead for landlords’ mercy was French luxury goods conglomerate LVMH. Revenue from its signature brand Louis Vuitton slumped 10 percent year- on-year in Hong Kong, Macau and China for the first half while Europe and the United States saw stronger sales of fashion and leather goods.
It is also planning to close a directly operated shop of its biggest watch brand, Tag Heuer, in Causeway Bay. “I’m not sure if the shop will be closed this year or next but for sure I want to close it because of high rental costs and a drop in traffic,” chief financial officer Jean-Jacques Guiony told Reuters on Monday.
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British high-end fashion house Burberry, which has 16 shops in the SAR, said it may trim its local store network and negotiate for lower rents after the Hong Kong market, which accounts for about one-tenth of the brand’s total sales, saw a double-digit percentage fall in sales over the period.
Meanwhile, Gucci owner Kering said it will consider closing its Hong Kong and Macau outlets if rents stay high. “Many landlords have not necessarily understood that the markets have changed,” chief financial officer Jean- Marc Duplaix said. Hong Kong and Macau accounted for more than 10 percent of Kering’s first-half luxury retail sales, a spokeswoman said.
Waning sales and whopping rents have sent Italian fashion label Baldinini packing. It shut its first and only flagship boutique in Hong Kong after just four months in operation, ending its three- year contract.
With big names reeling and pushing for cheaper leases, analysts said Hong Kong’s retail rents may see a drop in the second half. The Royal Institution of Chartered Surveyors forecasts a persistent decline in Hong Kong luxury goods sales. Demand for shop space – as well as retail rents – are expected to drop as the number of mainland visitors continues to fall.
In June, visitor arrivals from the mainland were down 1.8 percent year- on-year. Adding to the woes of luxury goods vendors are the changing spending patterns of mainland visitors, who are now looking for more mid-priced products.
Meanwhile, Midland IC&I (0459) chief executive Daniel Wong Hon- shing said retail rents have plummeted in the past six month, tumbling 20 percent from a year earlier. Rents in areas where mainland visitors are concentrated such as Causeway Bay, Tsim Sha Tsui and Yuen Long were hit hardest. Wong expects a further drop of 10-15 percent in retail rents by year end.
For homegrown retailers, which have more outlets and thus more bargaining chips, rent renegotiations are proving easier.
Jewelry seller Chow Tai Fook (1929) has extended the tenancy at a Mong Kok outlet for 40 percent less. It is paying HK$800,000 per month for the 1,400-square-foot store, back to the level in 2009.
Earlier Luk Fook Holdings (0590) renewed the lease for a store at 37C-37D Jordan Road for HK$315,000, 4.5 percent lower than four years ago.
But just as global brands are retreating and local ones turning cautious, mainland jewelry chain Laofengxiang has taken over a three- level shop on Nathan Road, Mong Kok, from Luk Fook at HK$2.1 milllion per month. While Luk Fook was trying to renegotiate its lease at HK$1.7 million – a 26 percent discount – the mainland’s largest jewelry and gold vendor bid HK$400,000 more to snatch the space.
Laofengxiang has snapped up two outlets in Mong Kok so far this year. Luk Fook, in contrast, has given up two in the past three months.
Source: High-end pain puts pressure on rents – The Standard
http://www.thestandard.com.hk/news_detail.asp?pp_cat=48&art_id=159827&sid=44957400&con_type=3&d_str=20150806
