Hong Kong’s most expensive shopping precinct is losing its bling factor as luxury brands shut their glitzy boutiques after seeing business plummet due to social unrest and the Covid-19 pandemic.
Expensive bags, jewelry and ready-to-wear items flew off the shelves in the flagship stores of almost all high-fashion and luxury-goods brands that had a foothold in Causeway Bay, Hong Kong’s famous tourist and retail haunt, until anti-government protests erupted last June.
By February, retailers and shoppers had begun to adjust to the sporadic street clashes across the politically-charged city, but then the novel coronavirus crept across from mainland China, further dampening sales and dashing hopes for a swift turnaround.
Even though the steady stream of spendthrift tourists, especially those from affluent regions of mainland China and Southeast Asia, has slowed to a trickle, the city’s commercial landlords, who are not known for having great empathy for their tenants, are stubbornly refusing to lower rents.
It has been reported that after local realty conglomerate Wharf Holdings refused to cut the HK$5 million (US$645,100) monthly rent for Louis Vuitton for the latter’s flagship store in the Times Square shopping mall, the French fashion house decided to terminate the tenancy later this year.
Prada shut its store in the same upmarket mall in February after it found it could not claw back its HK$9 million outlay on rent per month as sales had dried up.
Valentino has become the latest luxury company to cut costs by slashing the number of its stores in the city, with the closure of its main boutique at the Harbor City, also owned by Wharf, across the harbor in Tsim Sha Tsui.
The number of iPhones and other gadgets sold in Hong Kong has dropped due to shorter business hours and store closures. At one point Apple had to close a store in the Festival Walk mall in Hong Kong’s Kowloon Tong district after rioters trashed the upscale shopping arcade in November. Apple is being forced to dial down its operation in the city amid the social tumult last year and the ongoing plague. The US tech giant operates six stores across Hong Kong, and the city also serves as a key base for the iPhone-maker’s operations across Asia.
Other brands that are adjusting their network of shops in the city include wristwatch brands Omega and Longines as well as local jewelry chain Chow Tai Fook.
Hong Kong imposes no import or sales tax, so its close proximity to mainland China made it very attractive to Chinese tourists, middle-class consumers and even profligate spenders such as entrepreneurs or party cadres. Many visitors pounced on limited-edition items to flaunt their bon viveur lifestyle.
Nikkei once revealed that Hong Kong contributed roughly a third of the annual takings from Asia excluding Japan for LVMH, the world’s largest luxury-goods group. It is the parent company of brands including LV, Christian Dior, Fendi, Celine, Givenchy, Kenzo, Bulgari, etc.
In 2018, 51 million mainland Chinese flocked to the city to shop and revel, or 140,000 on any given day of that year, but the crowds have vanished since anti-China extradition bill rallies plunged the city into chaos and after Covid-19 emerged.
In February and March, after the city began to quarantine anyone entering, the number of mainlanders arriving in the city was under 100 a day, according to government figures.
The Hong Kong government reported a record drop in retail sales for February, with a 44% fall amid the lockdown and entry restrictions to a mere US$2.93 billion. And across different sectors of retail goods, luxury is the one that’s been hit the hardest. The sales of watches, clocks, jewelry and valuable gifts garnered 58% fewer sales this January and February when compared to the same period last year.
But the wave of store closures does not mean these brands are abandoning Hong Kong altogether; many will wind down their presence and reduce the number of stores they operate to a single digit.
And perhaps these brands will pay lower rents when landlords buckle under ongoing pressure. Property consultancy CBRE expects Hong Kong’s average street shop rent to fall by about 20% this year. The retail vacancy rate in the four core retail districts – Tsim Sha Tsui, Mongkok, Causeway Bay and Central – was about 8-9% in the first quarter.