Luxury retailers push HK landlords to cut store rents

September 21, 2015 09:20
A Prada store in Hong Kong's Causeway Bay district. Luxury retailers are facing a challenge as Chinese tourists have reined in spending. Photo: Bloomberg

Luxury brands are pushing landlords in Hong Kong to lower store rents amid a sales slowdown in the city as Chinese tourists rein in spending.

A spokeswoman for Prada told the Wall Street Journal that the Italian luxury house has talked to Hong Kong landlords about the issue of store rents.

So far, there haven't been any concrete results, the spokeswoman said.

Prada won’t expand or close stores in Hong Kong, for now, but if sales don’t pick up, it could consider not renewing some leases when they expire, she was quoted as saying.

Luxury retailers such as Prada and Kering SA -- which owns brands such as Gucci and Balenciaga -- flooded to Hong Kong in recent years to take advantage of surging Chinese appetite for high-end goods.

But now they are grappling with a challenge as China's economic slowdown has affected spending by mainland tourists.

Meanwhile, the appreciation of the Hong Kong dollar -- which is pegged to the US currency -- has made goods here more costly, dampening the prospects of local retailers.

Amid these headwinds, luxury brands are seeking a reduction in store rents to cut their costs.

"We have started negotiating rent levels with landlords in Hong Kong, Macau and mainland China, but also everywhere in the world," Jean-Marc Duplaix, CFO at Kering, told the Journal in an emailed statement.

"We are very lucid about the situation in Hong Kong, where we didn’t see any improvement [in sales] during the second quarter of 2015."

Kering said it could close some of its Hong Kong luxury shops if negotiations with landlords don’t work out.

Swiss watch maker Tag Heuer closed a store in Hong Kong’s Causeway Bay district in August because rents were too high.

Also that month, Coach shut a flagship store in the city’s Central business district, the report noted. 

Rents in Hong Kong’s shops are the world’s highest, beating those in New York.

Retail rents in the first quarter in Hong Kong were US$4,334 a square foot, above New York’s US$3,617, according to CBRE Hong Kong.

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