By  on February 21, 2018

HONG KONG — Italian lingerie label La Perla is facing eviction and further legal action over unpaid rent on its Asian flagship in Hong Kong, with its landlord seeking upward of 5.1 million Hong Kong dollars.The dispute came to light from a writ filed to a Hong Kong court on Thursday by Century Creations Ltd., the landlord of the premises at 22-24 Russell Street in Causeway Bay, against La Perla Far East Ltd. and its financial guarantor S.M.S. Finance SA —and despite the brand being given a rent reduction of more than 30 percent last year.La Perla and its prospective new owner Fosun International had not responded as of press time. Chinese conglomerate Fosun said in December it was to complete an exclusive 30-day due diligence period to buy a majority stake in the brand from Italian businessman Silvio Scaglia's Pacific Global Management, which also owns Elite Model Management.RELATED: Fosun Set on Buying La Perla >> The boutique is a prominent four-story location that includes a large LED screen on its facade. When it opened, the 8,000-square-foot store was said to the brand's largest. It was leased beginning Sept. 8, 2015 for five years at the rate of 7.5 million Hong Kong dollars ($958,575) a month.It appears the brand, like many others, struggled to navigate the retail sales citywide downturn on lowered demand from Mainland Chinese tourists — a trend that only recently turned a corner. Last April, the shop was able to negotiate a yearlong rent reduction to 5 million Hong Kong dollars ($639,000) a month.However, the landlord said the brand started to fall behind on payments starting in December. After the landlord sent a notice on Jan. 15, La Perla settled the month of December, while January was still left unpaid. It now also owes its February rent.Because of its late and overdue payments, the writ said La Perla has "lost its entitlement to the rent reduction under the supplemental agreement with immediate effect from March 1" and that "it is lawful for the landlord to exercise its power of reentry and forfeiture."RELATED: La Perla Debuts Spring 2018 Collection in Macau >>In total, the landlord is seeking unpaid rent of 9.2 million Hong Kong dollars — accounting for indirect property taxes already paid — a 31 million Hong Kong dollar deposit from S.M.S. Finance SA for La Perla's breach of agreement, plus interest on the outstanding sum of 1.5 percent, and additional costs in regards to the reinstatement of the premises, and expenses arising from a new letting.

Michael Cole, founder of Mingtiandi, a web site that tracks the real estate sector across Asia, said the problem owes to "a combination of a few factors: They agreed to their lease near the peak of the market, which makes it hard to sustain that rent now that sales have declined."

Theodore Knipfing of Plus Curiosity, a retail consulting firm, said the brand was late to negotiating on its lease. “If they had engaged in a rental renegotiation 12 to 18 months ago, they may have been able to secure a more sustainable rental deal," he said. "Things looked dire back then, and landlords were a lot more willing to negotiate, but now the market has somewhat stabilized. You see more tourists and less vacant retail spaces in Hong Kong now."RELATED: Fosun, Shandong Ruyi, and Tencent: Three Key Chinese Companies to Know >>After a two-year slump, Hong Kong retail sales turned positive last May. In December it tracked 5.8 percent year over year growth, indicating a recovery was underway."Typically, if a landlord has agreed to some sort of a rental renegotiation deal, they would usually make the tenant agree in writing to attempt no further renegotiations on rent. Therefore, in this particular case, I don’t believe this is a ploy or strategy to get the landlord back to the renegotiating table."Knipfing added that the brand has been aggressive overall in its retail footprint. For example, La Perla's flagship in Tokyo, located in Omotesando and opened in 2016, used to be the former flagship boutique of Cartier but the space was not renewed by the high jewelry brand.

“With the sort of rents you pay for a three-story flagship like that in Omotesando, it’s very hard to make a profit selling lingerie, nightwear, and beach wear. If a world-class jewelry brand is leaving a location because the rent is too high, how can it work for La Perla?" Knipfing said. "I think it was always a challenge for high street flagships [in] Causeway Bay or Omotesando from the very beginning. In that sense, I don’t think anyone is surprised that this is happening.” 

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