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Hong Kongers often say that the main attractions in this densely packed city are eating and shopping. But lately, it seems the focus has been more on shopping.
This story first appeared in the May 20, 2013 issue of WWD. Subscribe Today.
So far, 2013 is shaping up to be a busy year for Hong Kong retail, with openings every month. Over the past few weeks, Lanvin opened a flagship in the Central district, 3.1 Phillip Lim moved into a store at the IFC mall in Central and Uniqlo opened a 37,500-square-foot space in Causeway Bay. Coming up shortly, Topshop, in cooperation with Lane Crawford, will open a store on Queen’s Road Central.
As the gateway to China, Hong Kong has long been attractive to retailers.
“Hong Kong contributes significantly in building awareness and aspiration to China consumers,” said Ong Bee Cho, director at market research firm Ipsos in Hong Kong.
The city is a favorite overseas shopping destination for Mainland Chinese, who flock there for lower prices and better quality assurance. Luxury brands use the opportunity to introduce themselves to shoppers.
Brands often test out their reception in Hong Kong before delving into the Mainland market. “For many product categories and services, Chinese consumers see Hong Kong as the trend leader,” Ong explained. Though the Hong Kong-as-a-trend-leader image has diminished more recently with the rise of Shanghai and local Chinese designers, the vast majority of young Chinese “still look toward Hong Kong for lifestyle and fashion pointers,” Ong continued.
Mainlanders are an integral part of Hong Kong’s shopping landscape. Chinese shoppers are easily identified by their rolling suitcases, which they carry with them throughout the city from shop to shop. The dominant language in luxury shops these days is not Cantonese, the language of Hong Kong, but Mandarin. The growing influence of Chinese visitors has stoked some disgruntlement as Chinese demand for luxury goods has transformed the city — driving up rents and pushing out local mom-and-pop stores.
High demand and limited space has pushed Hong Kong’s retail rents to some of the highest in the world, up by 14.5 percent across the board last year, said Tom Gaffney, head of retail for Hong Kong at real estate agency Jones Lang LaSalle. In a prime district like Queen’s Road in Central, rents are now about 1,000 to 2,000 Hong Kong dollars, or $128 to $257 a square foot, monthly — or $1,536 to $3,084 a square foot yearly.
With rents as high as they are, brands are looking for alternative locations, depending somewhat on their target audience. More mainstream brands such as Marc by Marc Jacobs, Tommy Hilfiger, Coach, Victoria’s Secret and others have opened stores in Shatin, near the Chinese border, to target Mainland Chinese shoppers. Others are looking to some of Hong Kong’s more up-and-coming neighborhoods, such as Sheung Wan, west of Central, or Wanchai.
High rents are perhaps the biggest challenge for retailers in Hong Kong. Landlords are known to double rents if the opportunity arises. Shanghai Tang was forced to move its flagship from a historic building on Pedder Street after Abercrombie & Fitch reportedly agreed to pay double what Shanghai Tang was paying. Similarly, Forever 21 displaced Hong Kong-based apparel retailer Giordano for a prime 51,000-square-foot location in Causeway Bay, agreeing to pay 11 million Hong Kong dollars, or $1.4 million, a month ($16.8 million a year), which is about $330 a square foot annually. CBRE expects rents to be more “mild” this year, rising 8 percent.
Population: 7.17 million
Population change: +0.9 percent (up by 61,500) since 2011; +6 percent (up by 423,600) since 2008
Population projection: Maintaining average growth of 1 percent a year over next five years
Per-capita income: 248,400 Hong Kong dollars, or $32,004, annually
Disposable income: 231,299 Hong Kong dollars, or $29,820, per capita (2012)
Key industries: Financial services, trading and logistics, tourism, professional and producer services
Fast-growing neighborhoods: Wanchai and Central and Western districts have the highest monthly median incomes at 33,000 and 32,000 Hong Kong dollars, or $4,252 or $4,123, respectively.
Number of prime malls: 18 in Central, Causeway Bay and Tsim Sha Tsui
Mall developments: Midtown Soundwill Plaza will open 216,000 square feet of additional retail space in Causeway Bay in the third quarter this year. Jones Lang LaSalle estimates an additional 5 million square feet of retail space between now and 2016, but not in any single major development.
HOT SPOT: WANCHAI
For brands targeting local Hong Kong or expatriate Western shoppers, Wanchai, a former red-light district located between Causeway Bay and Central, is becoming increasingly appealing. Now populated by boutique shops, quaint cafés and bars and high-end restaurants, the district is home to Club Monaco’s first men’s stand-alone store and a Tommy Bahama boutique.
“It’s an emerging district and evolving very quickly. Given population growth and also things like average household income, Wanchai is extremely high, so it makes sense for brands to be there,” said Tom Gaffney, head of retail for Hong Kong at real estate agency Jones Lang LaSalle.
Rents in Wanchai are a fraction of what they are in Central, or about 100 to 200 Hong Kong dollars, or $13 to $26 a square foot per month ($156 to $312 a square foot per year), but there are caveats: store sizes are smaller at about 500 to 2,500 square feet, and foot traffic is about a 10th of what is it is in the busier retail districts.
The customer demographic is different as well — Mainland Chinese visitors make up about 10 percent of sales, compared with 30 to 75 percent in Causeway Bay, Central or Tsim Sha Tsui, according to Jones Lang LaSalle.