Luxury brands to force local retailers out of prime sites

A sensible pair of shoes or basic household items may become increasingly hard to find in Hong Kong's prime retail districts as wall-to-wall luxury brands force out local retailers.

Property consultants say home-grown retailers are being driven out of Hong Kong's prime shopping districts by big- and mid-range luxury brands which are rapidly building up their presences in the city.

Lured to Hong Kong by the acceleration in local retail sales and the growing number of wealthy mainland shoppers who visit the city, overseas and larger domestic retailers are bidding aggressively for prime locations within which to expand their retail footprint.

Since new supply is limited, less competitive players are being forced to move to suburban shopping centres where rents are lower.

With their business network and financial ability, big global brands usually outbid local players, said Joe Lin, senior director of retail services for CB Richard Ellis. The result is already visible in the shift in the retail mix in Hong Kong's leading shopping malls and shopping precincts toward international luxury brand retailers.

'So local retailers will disappear from prime shopping districts and they will be forced to move to sub-districts,' Lin said.

Given the city's cosmopolitan image as well as product reliability, Hong Kong has long been attractive to luxury brand retailers. That can be shown in the property consultant's newly released survey.

Hong Kong has maintained its position as the most popular destination for luxury retailers, with 84 per cent of the luxury brands covered in the 2011 edition of CBRE's 'How Global is the Business of Retail?' present in the city.

CBRE's annual survey - now in its fourth year - mapped the global footprint of 323 of the world's top retailers across more than 200 cities to identify trends in global retail expansion at national and local levels. Hong Kong has ranked number one in the past four years in terms of having the highest percentage of global brands present in the city.

'Hong Kong's ranking reflects the continuing love affair that local residents and increasingly visitors from mainland China have with luxury fashion,' said Nick Axford, head of Asia Pacific research for CBRE.

Hong Kong's retail sales have been driven higher by the improving domestic environment and the robust economic growth on the mainland. More than 22 million mainland tourists visited Hong Kong last year, accounting for 63 per cent of the total number of visitor arrivals.

Apart from luxury brands, there is a new wave of mid-ranged international brands coming to Hong Kong, a new source of pressure to drive local players out of the prime shopping areas.

'Rental is not their major concern. Because of the Hong Kong currency, international brands are willing to pay the rising rents in Hong Kong. It is limited space that is the issue,' Lin said.

Lin recently introduced some mid-ranged global brands to landlords of Hong Kong's major shopping arcades. But even though the clients were interested in having a local presence, they could not find space at the time.

When will home-grown retailers be totally extinguished from prime shopping precincts?

Helen Mak Hoi-lun, director of retail services at Colliers International, said there was no easy answer to that question.

'But the trend is under way. We have seen some home-grown fashion retailers such as G2000 facing mounting competition from international brands such as Zara and H&M,' Mak said.

'I recently brought one international retailer to visit the major shopping malls. They were curious to know why most of the shops were global brands,' she said.

Other examples of local retailers being forced out of prime shopping areas include US-based fast fashion retailer FOREVER 21 taking up space formerly occupied by local brand Giordano in Capitol Centre in Causeway Bay, and German luxury goods brand MCM taking over space previously occupied in Entertainment Building by another local clothing brand, Episode.

But some home-retailers that offer iconic cultural merchandise, such as Kee Wah Bakery that sells traditional bakery products such as mooncakes and bridal pastries, may be more difficult to dislodge from their premises, Mak said.

Both Lin and Mak believe that the trend will nonetheless continue in the wake of the continued growing retail sales and rising mainland shoppers.