Sunday, 9 August 2015

Retailers Change Their Tune

Did hot men result in hotter sales for Abercrombie & Fitch in Hong Kong?
A few years ago luxury brands muscled their way into prime retail locations in Hong Kong, which had the domino effect of unsympathetically pushing out mom-and-pop stores that had been there for decades.

This kind of gentrification was not welcomed by Hong Kong people -- these boutiques selling expensive fashion, jewellery and watches were catered towards mainland tourists, not the local population.

It got to the point where there were regular reports in the paper about this noodle shop closing, or that bakery shuttering because of exorbitant rents, and residents rushed to these places for their last bite because it reminded them of their childhood.

I also joked at the time that because all these food shops were closing that we wouldn't have anything left to eat.

Burberry's flagship store in Pacific Place
Abercrombie & Fitch created a stir when it kicked out Shanghai Tang from Pedder Building in Central, and even worse, was willing to pay double the rent at HK$7 million a month.

After the hoopla of having topless men with washboard stomachs (of course) doing publicity stunts around town, did that help sell millions of dollars worth of casual clothes per week?

Then there was Burberry that took over the space previously occupied by Lane Crawford in Pacific Place in Admiralty, that caused a chain reaction -- Lane Crawford then moved across the street to Queensway, uprooting a number of small shops that had occupied that area.

But now some of these brands are having their comeuppance, as mainland shoppers are not keen to buy big ticket items in Hong Kong, and instead are looking further afield to outlet stores -- in Europe and Japan where the euro and yen are weak.

Swiss watchmaker TAG Heuer is closing its store on the popular Russell Street in Causeway Bay, while luxury group Kering (formerly PPR) founded by Francois Pinault, will be asking for lower rents for its brands like Gucci, Saint Laurent Paris, Boucheron, Bottega Veneta, Stella McCartney and Qeelin.

Kering not only wants to get rent reductions in Hong Kong, but also Macau, and if these requests aren't met, some shops may have to close in the region, according to the company's chief financial officer Jean-Marc Duplaix.

IFC mall in Central is full of luxury brand stores
Following its big gamble of setting up many shop spaces in Hong Kong, Burberry Group is looking for a cut in rent, saying Hong Kong is "a challenging luxury market", while Coach says its weak sales were due to "lower tourist trends from the mainland".

On the other side, big landlords like Hongkong Land says it has received requests to decrease rent, but has refused to, while Cheung Kong Property Holdings that owns 1811 Heritage mall in Tsim Sha Tsui has frozen the rent for three years when leases were up recently.

However luxury mall owners like Sun Hung Kai at IFC mall and Hysan Development at Hysan Place and Lee Gardens have claimed they didn't receive any requests to have cuts in rent.

Chasing the mainland tourist dollar has been a short-sighted strategy all along. While the sheer numbers of visitors across the border cannot be ignored, Hong Kong entrepreneurs should not completely shut out local clientele.

Either way perhaps landlords will finally realize that their greediness was not sustainable long term...

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