Editorial | Changing market for luxury brands can be an opportunity for Hong Kong

The term “adapt or die” can be traced to the English naturalist Charles Darwin, whose 1859 book On The Origin of Species introduced the concept of animals and plants evolving to survive changing circumstances. Hong Kong, long an anomaly in the world of luxury brands for its number of regional headquarters and retail outlets and extraordinary sales figures, now faces the same challenge.

The mainland Chinese shoppers who drove the market have been scared off and the Covid-19 pandemic has eroded remaining business. With Shanghai now seen as the go-to location, downsizing is taking place, leaving empty offices, slashed advertising budgets and the city in danger of losing its reputation as a shopping paradise and fashion hub.

Hong Kong has never been a fashion capital to rank beside Paris, New York, London, Milan and Tokyo. Although the city each year stages a series of international fashion events, it does not have the world-renowned designers and schools that make those places a magnet for the industry’s elite.

But the shortcomings have been amply made up for in sales, some of the outlets of major brands being among the most profitable in the world and several having more shops locally than any other single location. A welcoming and transparent business environment, low taxes, efficient infrastructure, wealthy and middle-class citizens with high spending power and mall culture enabled it to attract the Asian headquarters of leading luxury groups for three decades.

In recent years, mainland Chinese held the key, accounting for the vast majority of luxury sales. They were drawn by proximity, tax-free prices and guaranteed quality. But that began to change three years ago with Beijing’s easing of import taxes, rising anti-mainland sentiment among some Hongkongers, a year of sometimes violent democracy protests and most damagingly, the Covid-19 pandemic. Retail sales for 2020 are likely to be the worst on record.

With the Chinese economy already recovering and no sign soon of a Hong Kong rebound, the strategy of overseas luxury firms has changed. The city was once seen as a stepping stone to mainland China, but now there is a realisation that the Chinese luxury market, the world’s most vibrant, can be directly tapped. Several have relocated headquarters or are redeploying resources to Shanghai.

It would seem an unrecoverable loss for Hong Kong, but should instead be seen as an opportunity. In the rush to cater for mainlanders, overseas brands ignored local customers; they should now try to cultivate that market. Demand being so much smaller, that will inevitably mean fewer shops. But the city should also rise to the challenge; by encouraging local design talent, it can strive to be a true fashion trendsetter. The lower rents will help.