Luxury’s Pain as Others Gain in Hong Kong and China – Wall Street Journal (blog)
Six months ago, Canton Road had a jewelry shop selling Rolex watches, diamond rings and the like for thousands of dollars. Today, the space is occupied by a Colourmix Cosmetics shop selling inexpensive lipstick and cosmetics.
Similar changeovers are happening all over Hong Kong, real estate industry experts say, as consumers spurn high-end goods and focus their spending on mid-range brands like SASA cosmetics and Adidas athletics.
“This is a structural change, the luxury brands have to face the reality of the situation,” said Joe Lin, executive director of real estate broker CBRE’s Hong Kong office. “If the rent is that expensive they cannot survive.”
Hong Kong retail rents in core shopping districts, which have declined significantly since 2015, are expected to fall 5-8% over the remainder of 2016, according to CBRE. Wellington Street in Central, once very popular among luxury brands, now has 12 vacant shops.
Some of the gap is being filled by high-street fashion brands, activewear retailers and food and beverage operators, according to a report released by Savills in April of this year.
“People love to see new and interesting things, more lifestyle products, and want to be able to eat good food when they go shopping,” said Mr. Lin.
Consumers are simply not as interested in spending on luxury goods as they once were.
“They are just not affordable luxuries for me,” said Jason Au, who was spending a recent lunch hour cruising the Landmark mall in Central, which is filled with shops including Gucci, Fendi men and Louis Vuitton. But he wasn’t planning on buying anything.
Mall landlords are reacting swiftly. Swire Properties Limited recently announced that it will be increasing its food and beverage footprint by 50% as well as enhancing its lifestyle and entertainment components at its high-end Pacific Place mall in a move to bolster its tenant mix.
“With all these additions, we want to enrich our offerings, bring refreshed dining experience in Pacific Place and appeal to a wider range of customers,” said Fiona Shiu, General Manager of Pacific Place. “We have seen a slowdown in the luxury retail market for Hong Kong… Pacific Place, like others in the industry, is not immune.”
Wharf holdings Limited is also refining its tenant mix as it plans to introduce new brands and new restaurants to its high-end malls Harbor city and Times Square, according to Fitch Ratings.
This trend is not exclusive to Hong Kong. In China, malls are actively re-branding themselves as “international,” “lifestyle” and “upmarket” in an attempt to move away from a “luxury” label,
Nicole Wong of CLSA said that malls across China are reinventing themselves by introducing colourful themes and activities like handicrafts. In a mall in Tianjin, an old ice-skating rink has been transformed into what can be described as a mini Japanese “tourist destination” where one can enjoy the local cuisine and cultural activities including a place of worship.
“These days shopping malls are not just exhibition halls of luxury brands but places where you can realise your dreams as a craftsman or even pretend you are on holiday in Japan,” said Ms. Wong.
– Kimaya de Silva. Follow her on Twitter @Kimaya_deSilva