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Hong Kong, American Retailers Face Off

Local favorites like Giordano, Esprit and Bossini are eying the arrival of Abercrombie & Fitch, The Gap and Forever 21.

A Giordano store

HONG KONG — Gap, Forever 21 and Abercrombie & Fitch are preparing to make their debut here, generating fresh competition for the city’s local fashion brands. But at the same time, some of Hong Kong’s own labels like Giordano and Esprit retain a hometown advantage over their more international counterparts, according to industry observers.

Gap, which has opened four stores each in Beijing and Shanghai, opens here Friday. Meanwhile Forever 21, which just staged a hologram fashion show in Macau, and Abercrombie & Fitch said they plan to enter the market next year. They will join Mango, Zara, Uniqlo and Hennes & Mauritz, who already have a presence here.

To be sure, a presence in the Hong Kong market will raise a brand’s profile and credibility in fast-growing Mainland China. But along way, these accessibly priced newcomer brands must contend with the unique characteristics of Hong Kong and its savvy consumer base.

“Hongkongers have an affinity for local brands that they don’t give up very lightly, explained James Roy, senior analyst at China Market Research Group.

These brands include Giordano, a Hong Kong-based casual wear chain with 75 outlets in the city. It is reminiscent of the Gap with a presence in several Asian countries. There is also Bossini, a brand known for its easygoing style and colorful T-shirts and polo shirts, as well as G2000, known for its simple and affordable office wear pieces that are easy to mix and match, with 39 and 41 stores, respectively.

These local brands might be less trendy then their more international counterparts but consumers still rely on them and have a relationship with them.

“They will still be able to eat,” said Hong Kong Designers Association vice-chairman Walter Ma of the city’s homegrown fashion brands. “The question is how big that bite will be.” Customers will return to local brands to buy certain items they are used to purchasing from them.

According to Jason Choi Tsan-ming, associate professor in fashion business at the Hong Kong Polytechnic University’s Institute of Textiles and Clothing, local brands have an advantage in that they offer lower prices than some foreign chains, are well known in the city, and are available in the most convenient locations.

Alice Fu, an assistant marketing manager at G2000, said the company has “a set group of fans” supporting its business and the company is not adopting any big strategies in anticipation of their arrival.

“We know the needs of Asian bodies well,” she said. The foreign brands “might not be so familiar with the Asian body or Asians’ needs.”

The international new entry brands are positioning themselves at some of the city’s top real estate. Gap will open on Queen’s Road Central and Abercrombie will make its home in Pedder Building in Central, the city’s business district. Meanwhile Forever 21 will take up a space in Capitol Centre, where Giordano was previously a tenant, in Causeway Bay, a popular shopping area.

Gap is paying 5 million Hong Kong dollars in rent per month and Forever 21 11 million Hong Kong dollars, according to real estate company Savills, while Abercrombie is paying 7 million Hong Kong dollars, according to real estate company Cushman & Wakefield. Those rents range from roughly $640,000 to $1.4 million at current exchange rates.

Their arrival is on the horizon just after Esprit Holdings, the city’s largest listed clothing chain, reported a 98 percent drop in its full-year profit in mid-September and management stated that the brand is in dire need of a revamp. Although Esprit does much of its business in Germany, it has some 17 stores in Hong Kong, which accounts for 1.7 percent of its turnover.

Clothing is big business in Hong Kong. Demand is expected to rise from $41 billion this year to $47 billion in 2014 in the city, according to a report published last year by PricewaterhouseCoopers.

The fact that Hong Kong is a shopping mecca for Mainland Chinese tourists accounts for much of that figure. HSBC economist Donna Kwok estimated visitors from China accounted for up to half of net local revenue for some Hong Kong retailers in a recent report.

Giordano chairman and chief executive officer Peter Lau acknowledged that the Hong Kong retail landscape is changing as new players come into the market.

“Although these three brands do not directly compete with Giordano for customers since we operate in different segments, they nonetheless present challenges to Giordano in terms of real estate, people and other resources,” he said, adding that the company will take advantage of this opportunity to make its operations more efficient.

Roy said that of the three international brands coming to Hong Kong, fast-fashion player Forever 21 will be a more direct competitor to local brands in terms of price. Abercrombie and Gap are expanding internationally at a higher-end position than in the U.S., at a price-point premium to Giordano and G2000, he said. Giordano T-shirts sell for about $10 to $30 while ladies’ office shirts run $25 to $35 at G2000.

Local brands are not likely to make major changes anytime soon because of the foreign brands. Choi said some Hong Kong brands took big measures when Zara and H&M arrived — Bossini, for example, changed its logo and store design — and that their reactions this time “will be much smaller because they already experienced this kind of entrant threat a few years ago.”

Choi said those brands that entered the Hong Kong market earlier got a “first-mover advantage” and that later arrivals must work harder at marketing, product design, store locations and shortening their lead time to position themselves.