Chow Tai Fook, Sa Sa to shut protest-hit stores in signs Hong Kong’s retail slump to persist in 2020

Chow Tai Fook Jewellery Group and Sa Sa International are planning to shut about one-fifth of their stores in protest-hit Hong Kong in the coming months and focus on growing their presence in the mainland China market, suggesting a slump in local retail sales is not about the reverse soon.

The world’s second-largest jewellery chain by market value has leases on more than 40 of its stores in Hong Kong expiring between April 2020 and March 2021, a spokesperson said in an email late Tuesday. The plan is not to renew as many as 15 of them in tourist districts such as Causeway Bay, Mong Kok and Tsim Sha Tsui, citing “macro headwinds” as a reason.

Sa Sa, Hong Kong’s largest cosmetics chain operator, plans to shutter 20 to 25 per cent of its stores in the next 18 months with most of the affected outlets in tourists areas, according to a statement accompanying its business update on Wednesday. The cosmetic chain operator saw a 35.2 per cent slide in sales in Hong Kong and Macau in the quarter ended December 31 from a year earlier.

The decision underscores the grim outlook for Hong Kong’s retail industry, even as seven months of anti-government protests have subsided in recent weeks. Retail sales slumped 23.6 per cent November, following a record 24.4 per cent fall in October, while the economy slipped into a technical recession in the third quarter.

Hardest-hit goods were luxury items such as jewellery and watches, with a staggering 43.5 per cent drop, according to government data.

Louis Vuitton paid an estimated HK$5 million in monthly rent at Times Square before its decision to shut its boutique

“The decision is 100 per cent related to the anti-government protests that have discouraged mainland tourists from coming to shop in Hong Kong,” said Louis Tse Ming-kwong, managing director of VC Asset Management. “This is another damning verdict on Hong Kong’s retail business outlook. Hong Kong retailers going northbound in their expansion will become a trend.”

Other retailers may follow to reduce the number of their shops in Hong Kong and reallocate their resources to mainland cities, which could offer cheaper rents and staff costs, Tse said. China’s leadership is also pushing for higher domestic consumption amid the rising purchasing power of the middle class, he added.

Since luxury brand Prada decided last year not to renew its lease in Hong Kong, businesses including BestMart360 and Louis Vuitton have also pulled back from the scene as social unrest dented traffic and the city’s landlords have declined to offer bigger rent reductions to alleviate the crisis.

Hong Kong went through its worst political crisis during the second half of last year, triggered by the unpopular and now-withdrawn extradition bill. As protests escalated, violent clashes with police ensued, leaving the city’s major shopping malls deserted and occasionally smashed.

The local economy is expected to contract 1.9 per cent in 2019, according to the International Monetary Fund, before eking out a small growth this year. The government has since rolled out several rounds of stimulus packages targeted at selected industries to soften the blow.

Best Mart 360 shuns ‘war zone’ Hong Kong for mainland China after protesters thrash 75 stores

Century-old French retailer Louis Vuitton have decided to close its flagship store at Times Square when its lease expires in June this year, according to people involved in the matter. Prada, which operates a flagship store on the world’s most expensive shopping street in the world, turned down its landlord’s rent offer and will move out this June, people have said.

Best Mart360, which has had 75 of its 102 shops trashed or firebombed by hard core protesters last year, will expand its business in mainland China to reduce its reliance on the Hong Kong market, according to its founder and chairman Lin Tsz-fung. Fast Retailing Co of Japan saw its overseas sales decline by the most in a decade, partly due to protests in Hong Kong.

Tiffany & Co, the biggest jeweller, revealed last month that its sales in mainland China posted a double-digit growth in the three months to October 31, while its Hong Kong side saw “significant disruptions.” Burberry said sales in Hong Kong had fallen 22 per cent in the six months to September, while its sales in the mainland had accelerated from the “mid to high teens” in the second quarter in mainland.

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“In view of the unabated difficult operating environment in the Hong Kong, the group will continuously adopt various cost control measures in order to maintain competitiveness and to return to profitability,” Sa Sa said in the statement. “As store rental is one of the largest operating expenses, the group has begun to downsize its store network according to store performance, business circumstances in each district and the extent of rental reduction.”

Chow Tai Fook expects to see a net addition of 600 stores in mainland China, according to its expansion plan, on top of an existing 3,636 there.

The jewellery store chain is part of the group founded by the late billionaire Cheng Yu-tung. The company said retail sales in Hong Kong and Macau plunged 38 per cent year-on-year during the quarter ended December 31 last year. That is in addition to a 35 per cent drop in the preceding quarter.

China sales saved the day. The group’s revenue was stable during the first half of financial year 2020 “thanks to our expansion strategy in mainland China,” chairman Cheng Kar-shun said in its interim report.

Shares of Chow Tai Fook declined 1.8 per cent in early trading on Wednesday. The stock jumped 14 per cent last year to HK$7.45, while the Hang Seng Index advanced 9.1 per cent.

– with additional reporting by Enoch Yiu