Shops such as Metrobooks can now afford Causeway Bay’s lower rents.Declining sales have left some of Hong Kong’s most established shops struggling to survive, but the economic downturn has seen a surprising group of winners emerge.
In key locations like Causeway Bay and Central, sportswear retailers such as Adidas, fast-fashion chains such as H&M, bookstore operators Eslite and Metrobooks, and new international players such as French lifestyle brand Maison Kitsune, have set up shop in premises previously occupied by luxury brands.
The brand reshuffle came after retail sales in the city contracted 3.7 per cent last year while mainland visitor numbers fell into red for the first time since 2004.
This took a toll on the luxury sector, as sales of jewellery, watches, and valuable gifts dwindled by 15.6 per cent. Meanwhile, overseas fast-fashion and mid-price brands have seen their businesses grow faster.
Analysts say rising occupancy rates in prime retail areas, rare over the past decade, have allowed a changing of the guard in retail and created a more diversified portfolio of brands for consumers.
Spencer Leung, executive director of UBS Investment Research, said it was likely rents for retail shops in prime locations would drop 70 per cent in the coming three years as a result of the downturn as mainland tourist numbers dwindled. “This is definitely a very healthy adjustment, but the process will be extremely painful,” he said.
Joe Lin, executive director of retail service at leasing consultancy firm CBRE, echoed Leung’s view about the opportunities. “This is great timing. An iconic store in a prime location is good for brand building,” Lin said.
Sluggish retail demand has already forced landlords to be less bullish about rents. The average cost of leasing a retail shop in Causeway Bay dropped 30 per cent in the fourth quarter of last year, while those in Tsim Sha Tsui, Central, and Mong Kok shrank 27 per cent, 25 per cent and 23 per cent respectively, according to commercial real estate services firm DTZ.
This has attracted German sportswear maker Adidas to replace US brand Coach in the four-storey store on Queen’s Road Central – for 22 per cent less rent. Adidas also leased a 13,800 sq ft space in the Hang Lung Centre, Causeway Bay, to open its first sports-performance flagship store on the island.
“[It’s] no surprise that Adidas replaced Coach’s flagship store in Central,” said Erwan Rambourg, global co-head of consumer and retail research at HSBC, as sporting goods usually did better than high-end retailers in an economic downturn.
The economic downturn also gave rise to pop-up shops in prime locations. Such stores are common in the US, Europe and Singapore, but have been rare in Hong Kong until now.
The trend has been embraced by luxury brand Fendi, online retailer Zalora, French label Maison Kitsune, British fashion brand Topman, and local jeweller Tse Sui Luen.
All of them have taken short-term leases – ranging from a few days to a few months – in prime city locations in the past year.