Local businesses pushed out by luxury retailers catering to the mainland

Pushing their luxe: a stampede to set up high-end shops catering to mainland visitorsis driving out local businesses. Cash registers are ringing now but is Hong Kong setting itself up for a fall, asks Elaine Yau

PUBLISHED : Monday, 10 June, 2013, 12:00am
UPDATED : Monday, 10 June, 2013, 10:55am


When Yem Kwok-hung closed his mahjong set business on Lockhart Road earlier this year, it wasn't just the end of a three-decade family operation. It also marked the loss of a piece of Hong Kong culture - his shop was the only one in town that still carved its own acrylic tiles.

"I learned the skills from my dad, who is from Shanghai. We had rented the site since 1980. The monthly rent rose from HK$750 to HK$10,000. When our lease came up for renewal, the landlord asked for HK$40,000. He didn't even bother to negotiate because he knew there was no way we could afford it."

Yem tried to find other premises but eventually gave up. "The rents are expensive everywhere. If we went to an out-of-the-way location we would lose our customer base," he says. "So I decided to change my career."

Yem's story is a familiar one. Escalating property prices are par for the course in Hong Kong. But for many residents, worries about shops being driven out of business have become all too frequent since the solo travellers scheme was introduced in 2003 to facilitate visits by mainland tourists. The city has benefited economically. Hong Kong Tourism Board figures show last year's 28 million mainland arrivals spent almost HK$111 billion during their visits, and accounted for 28 per cent of revenue in the retail sector.

But the stampede to tap this lucrative market has roused increasing resentment among Hongkongers, as many homegrown businesses and services catering to local needs are being priced out of existence.

Several groups, mostly internet-based, have sprung to counter what they view as a threat to local culture. The Hong Kong Autonomy Movement, which lists 500 members, is among them. Set up in 2011, the group organises regular seminars on Hong Kong identity and history, city tours and classes on topics such as local cinema and developments in the Cantonese language.

Its spokesman Wilson Lau recalls how parallel traders emptying pharmacies and supermarkets of powdered milk led to a campaign to "retake" Sheung Shui for residents in 2012.

"We feel that we are losing our way of life. Our living standards have worsened as transport systems are overwhelmed by mainlanders," says Lau.

"The cityscape has become homogenised as local eateries, traditional businesses and shops serving local residents give way to luxury shops that are out of the reach of ordinary Hongkongers."

Many of their observations are echoed by cultural commentators and real-estate agents specialising in retail properties. Sameness in the retail landscape is most obvious in the major shopping districts of Causeway Bay and Tsim Sha Tsui, says Daniel Wong Hon-shing, chief executive officer of Midland IC&I.

A prime example is Russell Street in Causeway Bay, where more than half of the 20-odd sites are now occupied by high-end jewellery and watch shops. Before the influx of mainland solo travellers, the street had a greater mixture of businesses with noodle shops, as well as luxury fashion stores.

As it has become a tourist spot, "top international brands fall over themselves to set up shop in the street, pushing rents sky-high", Wong says.

International consultants Cushman & Wakefield recently ranked it as the most expensive of the 326 shopping locations that it tracked around the world.

Leases are now signed for as much as HK$2,000 to HK3,000 per square foot and the only businesses that can afford this, Wong says, are those with big profit margins such as jewellery and watch shops.

A high-end watch shop may turn in monthly profits of HK$40 million, he says, so "rent of HK$4 million to HK$5 million is just a pittance for them".

Then there are the deep-pocketed firms which maintain a presence to build awareness among mainland shoppers. For instance, luxury leather goods maker Longchamp took up a two-storey space on Canton Road for a monthly rent of HK$7.5 million.

"They don't really care about cost effectiveness. It's more about advertising than making a profit," Wong says. "To many mainlanders, no matter how much advertising you do in China, a brand is only famous when they see it in Canton Road or Russell Street."

Dining institutions such as Chi Kee Wonton Noodle are simply not in this league, Wong says. The owner of the restaurant sold his Russell Street property several years ago for more than HK$100 million, and continued to occupy the space as a tenant after the sale.

But the restaurant was unsustainable: "How many bowls of noodles would you need to sell to pay the rent there?" Wong asks. The owner later moved upstairs.

Hudson Chang, whose family ran an Indonesian restaurant business in Causeway Bay for 45 years, mourns the loss of diversity in the area: "I played around Jardine's Bazaar as a child, and there were soya milk shops, toy stores and other small shops selling clothes or trinkets.

"Now Leighton Road is crowded with international brands, and shops with special characteristics are pushed to the fringes."

The family's IR1968 restaurants shrank from four branches to just one, on Leighton Road. But they've had to quit that space, too, after the landlord tripled the rent to HK$300,000 at the end of 2011, Chang says. He now operates just one eatery at an upstairs venue in Central.

Causeway Bay has long been a hot spot for tourists, and his restaurants served visitors from around the world. But mainland tourists don't attach as much importance to dining, Chang laments, and many are happy to eat in fast-food joints while bingeing on watches, jewellery and milk formula.

The phenomenon of local shops giving way to stores serving mainlanders is fast spreading to suburban malls, Wong says. "While high-end tourists mostly frequent Causeway Bay and Tsim Sha Tsui, solo travellers go to Yuen Long, Tuen Mun and Sheung Shui to stock up on baby formula, shampoo and medicine."

Now top global brands are scrambling to move into New Territories malls which were previously off their radar. At Tuen Mun Town Plaza mainlanders now account for 20 per cent of the clientele, up from 5 per cent to 8 per cent before 2007.

The opening of the Shenzhen Bay border crossing in 2007 boosted visitor numbers significantly, says Ronnie Chan Yam-ling, a general manager at Sino Land, which runs the plaza.

"Many of the mainlanders come from the residential districts of Futian and Nanshan, where people have high purchasing power. They visit the mall two or three times a week for recreation."

With Shenzhen Bay just a 10-minute bus ride away from Tuen Mun, Chan adds, many find it more convenient to shop there than fight traffic congestion to reach Shenzhen city centre.

This wave of shoppers has brought a change in the tenancy profile at Tuen Mun Plaza, with brands such as Rolex and Estée Lauder moving in over the past three years. "Ten years ago, about 30 per cent of our tenants were international brands. Now it's 60 to 70 per cent", Chan says, and turnover has risen 10 per cent year on year for the past two years.

But will the erosion of homegrown enterprises rouse more resentment? There was uproar last year when publisher Commercial Press's flagship bookstore was forced to quit Sha Tin Town Plaza after 20 years. Netizens accused the mall operators of catering to mainlanders at the expense of local needs.

Chan insists their priority remains Hongkongers: "We aim to serve the 110,000 combined population in Tuen Mun, Yuen Long and Tin Shui Wai. With the second generation of residents becoming breadwinners, locals have more disposable income and look for a quality lifestyle."

But long-term prospects for Hong Kong look grim to Chin Wan-kan, an assistant professor at Lingnan University and author of several books on local culture, including the bestselling Hong Kong as a City-state.

"Hong Kong has become a city without hope," Chin says. "While it hasn't created world-renowned brands, its unique cityscape where hi-tech, local culture and traditional Chinese elements converge is itself a brand. But this brand is quickly vanishing."

In the mad rush for mainland dollars, Chin says, the city is creating a one-source economy, and retail earnings could dry up with any shifts in mainland policy. This type of growth "snuffs out entrepreneurial spirit, as locals who used to run their own innovative businesses are driven out by exorbitant rents", Chin says.

He suggests if a tax-free zone were set up in Shenzhen with Hong Kong-style rule of law, international brands would quickly relocate there. "But those local businesses which closed and those foreign visitors who shun Hong Kong because of the crush of mainlanders, will never come back," he says.

"Hong Kong people are foolish to chase after mainland dollars. The political parties chant slogans about smooth integration between China and Hong Kong. They don't care that Hong Kong is losing its unique cityscape. But in the long term, the lower classes suffer.

"The environment is no longer favourable to locals who want to do business. The local economy has lost diversity."