How retailers in HK can survive the crisis in the industry

June 27, 2016 15:03
Top brands need to go back to their original positioning, offering customers a premium experience with high-quality service and exclusive offerings. Photo: Savills

Francis Gouten, director of Gouten Consulting and former chief executive of Richemont Asia Pacific Ltd., talks to Nick Bradstreet, managing director and head of leasing for Savills Hong Kong, about the Hong Kong retail market.

How do you see the economic environment at the moment?

FG: It is certainly the most challenging I’ve seen since SARS (the outbreak of severe acute respiratory syndrome in 2003). But the rents in shopping malls are not decreasing. However, nobody dares to close shops in the luxury space, but it will happen; it must happen.

What kind of pressures are having an impact on retail?

FG: There are lots of factors, the pressure of rent and the pressure of the stock market, as major groups are managed by financial people. You have to show quick results, and we are in a world of short-term views.

There is a complete change -- in Hong Kong we now rely less on the mainland Chinese. Hong Kong was the first destination for rich people, and now they are going somewhere else. There are still many visitors in Hong Kong, but they are not spending as much.

How can retailers respond to the crisis?

FG: Before, many of the big brands set out to impress the mainland Chinese, and they rented bigger stores to show they are big brands. But in part, this killed the malls and the interest in those places, because when you have a brand on three floors, what else is there? What can I discover?

If I have to advise shopping malls nowadays, I would say reduce store sizes and bring more diversity to malls. Don’t give three floors to one brand.

So what will happen to brands?

FG: The top brands will recover. They will remain financially strong, but right now they are cutting expenses and people, and freezing openings. They are taking a long-term view at the moment.

Asia is still an important part of the business, but perhaps not as important as in the past 10 years. A big part of the results in Asia was gifting, around 35-40 percent, generating more exclusive and over-priced products. But this is no longer the case.

What market strategy should brands take?

FG: You need to go to local consumers and target them directly. Luxury took off because of the fashion brands, but now everybody is in luxury.

Top brands need to go back to their original positioning of a premium experience by welcoming the clients, providing a high-quality service and exclusive offerings. They need go back to the heritage of brand and target the core customer.

So service and the experience are essential to this?

FG: What did luxury mean 60 years ago? Luxury was a well-made, high-quality product made in limited quantity. This product was made by families, with fantastic know-how of a single product, and only one or two shops in the world.

People came from around the world to buy this special item, often customized to their own liking. Clients are still seeking that kind of exclusivity and service.

You need to protect your DNA, origin, and essence of the brand. How can brands understand their clients? How can they serve them better?

There needs to be an upgrade in the quality of the service, which can be done through detailed training programs for all in-store staff.

I once purchased a beautiful jacket from a luxury brand, and the salesperson asked me if I wanted to pay an extra 50 cents for a bag. I thought, “It’s raining outside, of course I want a bag. Charge me HK$500 more, I don’t care! If you go into a luxury shop, you should be treated as a luxury client. This is important.”

Do you need to bring the price point of luxury items down?

FG: Brands are thinking about it, but it’s always difficult in luxury. For current products, customers who bought already will feel cheated. Some brands have done it already by only dropping prices for new products, and then rethinking their way of localizing profit.

Is Macau doing better than Hong Kong?

FG: A little better. A few years ago some of their shops were No. 1 in the world. Now, Macau will continue to grow, but it will be more mass-market. When you have a large mass market you have room for the upper market as well.

Macau is a pure leisure destination, and when you are on holiday you spend money, so you’ll see some changes in tailoring a luxury experience.

So how is the Hong Kong market developing?

FG: You are seeing the return of activewear and mass traffic brands. Expensive sportswear is a strong trend, because these brands have improved image perceptions. Thirty years ago it was not the case. Now these brands have better designs, specializations and technology.

And what is happening with e-commerce?

FG: China is the world’s biggest e-commerce market – they are selling cosmetics, ladies' shoes, kids' toys, but it is not yet for luxury.

You have many fake products, and e-commerce is also a discount business. I do not recommend luxury brands go there. If I can buy your products in mass on the internet, what does that do to your image?

But e-commerce cannot be stopped – it needs regulation. The majority of brands do not understand it. But it is important for brands to have people who understand the digital environment.

What is even more important nowadays is, as I have mentioned, to reinvigorate the luxury experience and focus on attention to detail.

The experience of luxury should be intimate, bespoke and, above all, exclusive.

Going back to the roots of luxury and targeting the core customer will ensure a bright future for luxury.

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Managing Director and Head of Leasing for Savills Hong Kong