Hong Kong loses lustre as retail units go vacant and luxury brands look to China

Rents in Tsim Sha Tsui are down 41 per cent from pre-pandemic levels. PHOTO: REUTERS

HONG KONG - Hong Kong, one of the world’s top luxury shopping destinations, is losing its lustre as high-end retail properties go vacant and famous foreign brands reduce exposure to the city in favour of opening new stores in mainland China.

Glitzy Hong Kong shopping streets once packed with luxury stores that attracted 56 million visitors in pre-pandemic 2019 now have about half of their shop units sitting vacant, according to property management companies.

Rents in Tsim Sha Tsui are down 41 per cent from pre-pandemic levels, according to property firm Cushman & Wakefield, and in 2022 the retail district was displaced as the world’s most expensive shopping real estate by New York’s Fifth Avenue.

Canton Road, the most famous shopping street in Tsim Sha Tsui, has a vacancy rate of about 53 per cent, according to global property company Savills.

“Most luxury retailers don’t think Hong Kong will return to the dizzy levels of 2014 when the market here peaked,” said Mr Simon Smith, Savills’ senior director of research and consultancy in Hong Kong.

“If you walk around the major shopping areas you won’t see the queues outside luxury boutiques or if you do they are very short,” Mr Smith said.

In place of stores shut by Tiffany, Valentino, Burberry and other big brands over the past three years, including in the Tsim Sha Tsui, Central and Causeway Bay shopping districts, pharmacies and sports apparel outlets for brands such as Adidas and Sweaty Betty have moved in.

The store closures came after pro-democracy protests and the crackdown that followed pushed sales into a slump that worsened under nearly three years of stringent Covid-19 rules.

Inbound travellers in January trebled from December as Covid-19 restrictions were lifted and travel resumed, but arrivals were still only about 10 per cent of 2019 levels.

Morgan Stanley forecast Hong Kong visitor numbers in 2023 will reach just 70 per cent of 2018 arrivals. It estimates retail sales will grow 15 per cent, holding at around 80 per cent of retail trade from the pre-Covid-19 year.

Many more alternatives

Many luxury brands expanded in mainland China during the pandemic, opening stores in far-flung locations to reach consumers unable to travel. Tourist destinations such as resort island Hainan and Macau have also become popular alternatives as China sought to develop multiple duty- and tax-free destinations.

Visitors to Macau in January more than trebled from December, hitting 40 per cent of the level of January 2019. Hainan, which reported visitor growth even during the pandemic, saw arrivals rise 11 per cent between Jan 8 and Feb 15, compared with the same period a year earlier.

“(Hong Kong) will never be back to the level it was, like a decade ago, when it was the only, I would say, duty-free location where Chinese would go,” L’Oreal chief executive Nicolas Hieronimus told Reuters.

“Now they have many more options.”

Duty-free malls in Hainan, where tourists are the main customers, reported an 84 per cent jump in sales in 2021, the latest data from consultancy Bain & Co showed, outpacing the mainland’s average growth rate of 36 per cent in luxury sales for that year.

Hainan also accounted for 13 per cent of China’s domestic luxury spend in 2021 versus 6 per cent pre-pandemic, and tax regulations are set to ease further, allowing more duty-free stores to open.

That helped China’s domestic luxury sales double to 471 billion yuan (S$91.6 billion) in 2021 from 2019, according to Bain. It outstripped total Hong Kong retail sales from a peak hit in 2013 at HK$494.5 billion (S$85.3 billion), according to the city’s statistics department.

This imbalance in favour of increasing sales in China saw big luxury brands opening stores across the country over the last few years.

Hermes, with 27 stores in the mainland, opened a new, enlarged store in Nanjing in January, relocating to upscale mall Deji Plaza.

Gucci owner Kering opened nine boutiques in Greater China in 2021; upscale men’s suit maker Brioni opened stores in Chengdu, Wuhan and Shenzhen; jeweller Boucheron opened two mainland stores. Saint Laurent, another Kering brand, opened its first flagship stores in Shanghai and Beijing in 2019. The group’s jeweller Qeelin has also been expanding in the mainland and opened its largest flagship store in China in Shanghai in 2021.

Despite the increasing investment in the mainland, some are still hopeful about the long-term outlook for Hong Kong as global economies and holiday travel recover.

“Macau is another tax-free destination and Hainan is duty-free. Yet, you don’t find the breadth and depth of mono-brand stores in Hainan that you can find in Hong Kong,” Mr Luca Solca, managing director for luxury goods at investment management company Sanford C. Bernstein, told Reuters.

“Hong Kong remains very attractive for Chinese consumers.”

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