Luk Fook to expand in prime shopping districts as rent rises ease

Luk Fook Holdings International, the second-largest jeweller in Hong Kong by market value, plans to expand in the city's prime shopping districts as landlords hold back on raising rents.

Landlords were foregoing rent increases or asking for smaller gains when leases came up for renewal, said Luk Fook chairman Wong Wai-sheung.

The company planned to expand in prime locations such as Causeway Bay and Tsim Sha Tsui, where it expected growth in jewellery sales, while closing shops elsewhere, he said.

"Usually when we renew leases for stores that we rented three years ago, we would see a big jump in rent," said Wong. "But we've seen the rental increase slow at many stores. Some landlords didn't even ask for more rent."

Sales at luxury retailers in Hong Kong dropped at least 25 per cent each month in the second quarter as mainland tourists spent less on watches and jewellery.

Luk Fook is adjusting its mix of stores as slowing economic growth and a corruption crackdown on the mainland crimp spending.

A shop under renovation in Tsim Sha Tsui, a district popular with mainland tourists, would become bigger when it reopened before the Christmas holidays, Wong said. The company has opened new shops in Causeway Bay, Mong Kok and Tsuen Wan this year.

The number of shops Luk Fook operated in Hong Kong would be unchanged from a year ago as it shuttered stores elsewhere, he said. The company had 44 shops in the city at the end of June.

Financial Secretary John Tsang Chun-wah said earlier this month that spending by tourists "dropped significantly" in the second quarter, leading the government to lower its economic growth forecast for the year.

Hong Kong was seeing more tourists from smaller mainland cities with less purchasing power, said Luk Fook executive director Nancy Wong Lan-sze.

The average price of products sold declined to HK$7,700 for the year to March from HK$8,700 a year ago, according to a company presentation in June.

Protests against mainland tourists and over the election of Hong Kong's next chief executive also affected Luk Fook's sales, Wong said. "We hope these conflicts can be peacefully solved so that our business won't be ruined," he said.

Retail rents in secondary locations in Hong Kong were expected to fall as much as 15 per cent from a year ago as retailers stayed cautious, real estate consultancy CBRE said in a report reviewing the second quarter.

Prime-street retail rents in the city were about US$4,334 per square foot annually at the end of last year, 31 per cent higher than in New York.