Hello Kitty, farewell Rolex as Hong Kong shoppers go downmarket

Luxury-goods retailers hit by drop in Chinese visitors and tourist spending making way for cosmetics and sports-shoe stores in some of city’s priciest shopping streets

PUBLISHED : Wednesday, 28 October, 2015, 6:40pm
UPDATED : Thursday, 29 October, 2015, 11:40am

In Hong Kong, fancy handbags are out, sports shoes are in.

US luxury handbag maker Coach opened its four-storey flagship store in the heart of Hong Kong’s Central district to much fanfare in June 2008, with a celebrity-studded, champagne-fuelled party. In August, the company quietly terminated its HK$5.6 million per month lease and Adidas is moving in – paying 23 per cent less in rent, according to Colliers International.

This is not an isolated case. Russell Street in Causeway Bay, which boasted the most expensive shop rents in the world until New York’s Fifth Avenue overtook it a year ago, is undergoing a major transformation. A location formerly rented by Emperor Watch and Jewellery that sold diamond-studded Cartier watches is now home to discount cosmetics retailer Bonjour that sells HK$58 packets of Hello Kitty false eyelashes and HK$18 jars of Tiger Balm ointments. Next door, rival Colourmix Cosmetics has moved into a space vacated by Swiss watchmaker Jaeger-LeCoultre.

Shopping habits are changing; a couple of years ago it was not uncommon to see mainlanders go into watch stores and ask for 10 Rolexes
Marcos Chan, CBRE

As Gucci, Louis Vuitton, and jewellery chain Chow Tai Fook bargain for lower rents or close stores amid a decline in tourists from China who had underpinned their sales, mid-tier retailers are filling the gaps. Brands that appeal to the broader market are taking advantage of declining leases to move into some of Hong Kong’s most coveted retail locations.

“The fallout in the watch and jewellery as well as luxury sector is paving the way for fast fashion brands to expand,” Tom Gaffney, head of retail at Jones Lang LaSalle in Hong Kong, said.

SEE ALSO: Tourist numbers edge up during ‘golden week’ but Hong Kong retailers fail to benefit

Retail rents started falling after the city’s appeal as a shopping paradise for Chinese tourists was hurt by anti-China protests last year, a slowing China economy and Beijing’s austerity and anti-graft campaigns, which have made the Chinese wary of splurging on luxury goods. Hardest hit have been sales of watches and jewellery, which have fallen year on year for the past 11 months.

“Shopping habits are changing; a couple of years ago it was not uncommon to see mainlanders go into watch stores and ask for 10 Rolexes,” said Marcos Chan, head of research for Hong Kong, Taiwan and Macau at CBRE . “Now we hardly see people even buying one.”

While luxury brands are abandoning street-front locations, they are maintaining their presence in high-end malls, where monthly rents are lower in part because landlords also receive a portion of sales receipts as part of a tenant’s payment.

SEE ALSO: Hong Kong retail rents will continue to fall in next year, says brokerage

Another source of the slowdown is that Chinese shoppers, who represent 10 per cent of global tourism and more than 25 per cent of luxury spending, are forsaking Hong Kong in favour of Europe, South Korea and Japan, attracted by weaker currencies and relaxed visa procedures, according to Bloomberg Intelligence. A rising backlash against Chinese tourists has also hurt Hong Kong’s appeal, said CBRE’s Chan.

Jones Lang expects street rents in Central to drop a further 10 per cent in 2016 after falling about 20 per cent to 30 per cent this year, while leases on more than 200,000 square feet of space on Queen’s Road in Central, one of the city’s premier shopping destinations, will become available between now and 2018.

Just steps from one of Hong Kong’s busiest subway stations in Central, Athens-based affordable fashion brand Folli Follie opened a store in mid-October after luxury watch retailer Carlson moved out.

H&M is also taking advantage of falling rents to expand. On October 30, it will open a four-storey flagship, its largest store in Asia, in Causeway Bay.

“One part of our expansion strategy is about getting a good and competitive deal,” said Magnus Olsson, the Swedish retailer’s country manager for Greater China, declining to provide rental details. “If we were not happy, we wouldn’t have opened.”

Helen Mak, senior director of retail services at Colliers, said that while Hong Kong’s superior level of service would continue to attract tourists, they were looking for a different shopping experience.

“In the past, four out of five shops were selling Rolexes,” she said. “In the future, a tourist will expect to see more varieties of retail shops in Hong Kong.”