Why Hong Kong is still attractive to international retailers

Hong Kong is still an appealing destination for international retailers, especially mid-market brands which see the recent slowdown and rental decline as an opportunity to get a business presence in the city, according to property consultants.

“In some prime locations, rents have dropped more than 40 per cent from their peak in the second half of 2014. Some retailers, which failed to compete against luxury brands to get a shop in Hong Kong in the past. see this as an opportunity,” said Joe Lin, executive director, retail services, for CBRE Hong Kong.

Sportswear brands are very active and have plans to expand, he said.

As an example, Adidas took over Coach’s coveted spot in the middle of Central’s business district, and opened another flagship outlet in Fashion Walk in Causeway Bay early this month.

“Hong Kong ‘s retail market suffered across the board when in 2003 when Sars broke out, or after global financial crisis in 2008. But now the city only sees a slump in retail sales of luxury products,” said Lin.

The latest government statistics showed Hong Kong’s retail sales dropped 12.5 per cent in the first three months of this year, the poorest first-quarter performance since 1999. March’s retail sales value was down 9.8 per cent year-on-year and demand for jewellery and watches fell by more than 20 per cent. The government said the slowdown in inbound tourism continued to be a severe drag on retail sales.

In a report released by JLL on Monday, the property consultant said Hong Kong is the world’s second most appealing luxury retail destination after London.

The research, which for the first time provides a global ranking of cities by their appeal to cross-border retailers, also put Tokyo, Shanghai, Singapore, Beijing, Osaka and Taipei in the top 10.

Despite a recent change in profile and spending patterns of Mainland Chinese tourism which has led to a slowdown in sales, retailers continue to benefit from the city’s top notch infrastructure network, superior business conditions and strong economic climate, according to the report.

Many brands view Hong Kong as a stepping stone to enter China or a platform to go international. Recent entrants into Hong Kong include luxury lingerie retailer Agent Provocateur, Italian cosmetics brand Kiko Milano and athletic clothes for yoga and running Lululemon.

Hong Kong also features many of Asia’s top eateries, including restaurants from celebrity chefs such as Joel Robuchon, Gordon Ramsay, Jamie Oliver and Jason Atherton.

The study sample consists of 240 international retail brands; each has a significant presence in at least two global regions, those being the Americas, Asia Pacific, Europe and the Middle East and Africa region.

“International brands targeting the mass and mid-market are active in Hong Kong’s retail leasing market. They are usually sport, accessories, bank, shoe and F&B retailers,”Terence Chan, head of retail at JLL in Hong Kong, said.

Lin of CBRE said retailers are expecting a further rent cut before they make up their minds to go into Hong Kong.

He said retail rents on average fell 17 per cent last year and have dropped another 5.5 per cent so far this year.

“We expect the street rent to drop 10-15 per cent this year,” said Lin.

A few years ago, the China factor was a major reason for international retailers to expand their footprint in Hong Kong but that strategy has changed, according to Lin.

‘For mid-range brands and sportswear brands, they see Hong Kong itself as a sound local market to enter as rents drop,” said Lin.