Mass-appeal trumps luxury brands in HK

HONG KONG • In Hong Kong, fancy purses are out, sneakers are in.

US luxury handbag maker Coach opened its four-storey flagship store in the heart of Hong Kong's Central district to much fanfare in June 2008, with a celebrity- studded party.

In August, it quietly terminated its HK$5.6 million (S$1 million) a month lease and adidas is moving in - paying 23 per cent less in rent, according to Colliers International Group.

This is not an isolated case.

Russell Street in Causeway Bay, which boasted the most expensive shop rents in the world until New York's Fifth Avenue overtook it a year ago, is undergoing a big transformation.

A location formerly rented by Emperor Watch & Jewelry that sold diamond-studded Cartier watches is now home to discount cosmetics retailer company Bonjour Holdings that sells HK$58 packets of Hello Kitty false eyelashes and HK$18 jars of Tiger Balm ointments.

Next door, rival Colourmix Cosmetics Co has moved into a space vacated by Swiss watchmaker Jaeger-LeCoultre.

As Kering SA's Gucci, LVMH's Louis Vuitton and jewellery chain Chow Tai Fook Jewelry Group bargain for lower rents or close stores amid a decline in mainland tourists who had underpinned their sales, mid-tier retailers are filling the gaps. Brands that appeal to the broader market are taking advantage of declining leases to move into some of Hong Kong's most coveted retail locations.

Retail rents started falling after the city's appeal as a shopping paradise for mainland tourists was hurt by anti-China protests last year, a slowing mainland economy and Beijing's austerity and anti-graft campaigns, which have made the Chinese wary of splurging on luxury goods.

Hardest hit have been sales of watches and jewellery, where sales have fallen year on year for the past 11 months.

"Shopping habits are changing. A couple of years ago, it was not uncommon to see mainlanders go into watch stores and ask for 10 Rolexes," said Mr Marcos Chan, head of research for Hong Kong, Taiwan and Macau at CBRE Group. "Now we hardly see people even buying one."

Another source of the slowdown is that Chinese shoppers, who represent 10 per cent of global tourism and more than 25 per cent of luxury spending, are forsaking Hong Kong in favour of Europe, South Korea and Japan, attracted by weaker currencies and relaxed visa procedures, said Bloomberg Intelligence.

Jones Lang expects street rents in Central to drop a further 10 per cent next year after falling about 20 to 30 per cent this year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 29, 2015, with the headline 'Mass-appeal trumps luxury brands in HK'. Print Edition | Subscribe