Daring retailers seize the moment

PUBLISHED : Wednesday, 26 November, 2008, 12:00am
UPDATED : Wednesday, 26 November, 2008, 12:00am

While some store owners have been forced to close shop because of cash-flow problems, adventurous retailers remain willing to move into vacated premises and take advantage of the market downturn to expand, says Maureen Fung Sau-yim, the general manager for leasing at Sun Hung Kai Properties, Hong Kong's largest private shopping centre operator.

'Recently, we signed up various tenants who wanted to lease bigger spaces in our shopping centres in the light of declining competition,' said Ms Fung. 'People still need to eat and want to look better even during an economic downturn.'

Tenants who were taking an optimistic view included cosmetics retailers and 'hip-hop' food outlets with a special appeal, she said.

Ms Fung said tenants signed up since July who took up one-third of the 180 shops at apm, the group's flagship shopping centre in Kwun Tong, had achieved turnover thresholds and were now paying rent based on a share of turnover - a sign that their businesses were flourishing.

'And the more business the tenants can generate, the more rents we will receive,' she said.

It is common practice for shopping centre operators to charge a base rent that shifts to a turnover rent once sales exceed an agreed threshold.

Base rents charged at apm, where shops are licensed to remain open until midnight, range from HK$90 to HK$180 per square foot per month.

'The number of tenants on turnover rents shows that their business is less affected by weakening consumption,' Ms Fung said.

'And retailers prefer to move into shopping centres instead of operating from street-level shops, as landlords are willing to raise their promotional budgets to lure shoppers as a way to create business opportunities for tenants.'

Since March, about 90 per cent of tenants renewing leases at apm had been required to pay rents 20 to 30 per cent higher than previously when their leases came up for renewal, she said.

So far, no tenants have objected and asked for a rent cut. To support tenants, Sun Hung Kai is launching an unprecedented 'intensive promotion' during the Christmas season in a bid to fight for shoppers' dollars.

'We will kick off 500 hours of entertainment programmes at apm during Christmas. That is 30 per cent longer than last year in terms of hours of shows to lure shoppers,' Ms Fung said.

Besides the higher promotional budget to lure shoppers, tenants were also gearing up efforts to stimulate shoppers to dig deeper into their pockets, she said.

Total promotion fees for more than 35 shopping centres in Ms Fung's portfolio were up 20 per cent to more than HK$30 million this year, of which apm accounted for HK$15 million.

Amid the tighter lending environment, a growing number of designer labels had brought their discounts and VIP sales forward by three or four weeks to early this month. 'As retailers have to replenish goods for the coming spring, they need to improve their cash flows by clearing stockpiles in case banks have no plan to relax their lending policy,' she said.

The average revenue generated by Ms Fung's leasing portfolio grew between 10 and 15 per cent last month, compared with between 15 and 20 per cent growth for the same month last year.

With a growing number of companies filing for bankruptcy or laying off staff to cut costs, the Retail Management Association has predicted retail sales around Christmas would drop 5 to 8 per cent year on year. But Ms Fung believes bargain sales will continue to get people to spend.

'We have to ignite people's spending mood to dilute the negative impact of the deepening global financial crisis,' she said.

To boost domestic consumption, she said the government must move fast to hand out shopping vouchers without too many restrictions.

During the weekend, the Liberal Party suggested the government should hand out HK$1,000 worth of shopping vouchers per person to boost consumption.

The suggestion followed news last week that the Taiwan government would give the island's 23 million residents NT$3,600 (HK$850) worth of shopping vouchers each to stimulate consumption just before the Lunar New Year on January 26 and expire at the end of the year.