LANDLORDS IN HK WIDEN TENANT MIX
Decline in sales forcing luxury brands to scale down ops in city
TO gauge how much the shopping experience, here, is changing, take a walk through Pacific Place mall. Burberry Group Plc has shrunk its store and the space now also houses a Pure yoga studio and juice bar. A Coach outlet has been replaced by a tea company. Some of Louis Vuitton’s space has given way to a Southern California-style bar and restaurant.
Gone are the days when Chinese would queue up to get inside Prada, Gucci and Tiffany, and leave laden with luxury handbags and watches. The wealthiest now travel farther afield, and even those who visit Hong Kong are cutting back.
Average spending per overnight visitor, of whom three quarters come from China, dropped 8.8 per cent in the island city last year. Luxury goods have been the hardest hit, with August sales less than a third of their April peak in 2013 before China cracked down on conspicuous consumption.
Buying habits of Chinese shoppers have also evolved, as they have become more comfortable buying luxury brands at home, or online, and have become more price sensitive when shopping abroad. This is having an impact on the US$390 billion (RM1.6 trillion) global luxury goods market and nowhere is it being felt more than at the malls, here.
Since the downturn, Pacific Place owner Swire Properties Ltd has refreshed its tenant mix to cater to changing spending habits and woo new visitors. It has signed 30 new tenants and doubled the number of food and beverage outlets in the past 18 months. Other landlords, including Wharf Holdings Ltd and Hysan Development Co, are also including more lifestyle and food outlets.
Still, as visitor arrivals and retail sales started to rebound, there was limited upside for the landlords, said Patrick Wong, Bloomberg Intelligence property analyst, here. “Receipts might be stable and resilient, but if things turn better, they may not be able to capture the growth there.”
For mall owners, broadening their mix of tenants is helping blunt the negative impact of lower retail sales, although a return to the heady times looks unlikely.
No matter how many cups of cold brew Starbucks sells, or shoes Nike flogs, they won’t be enough to offset the drop in sales of US$10,000 handbags and glittering diamond necklaces. Landlords earn less through the portion of receipts tenants must share with them, and they’ve had to drop base rents for new tenants as well.
In the first half, retail revenue for Swire dropped 0.2 per cent and Hysan’s fell 0.1 per cent, said Wong.
Meanwhile, Wharf, Hong Kong’s biggest retail landlord, saw sales growth of three per cent because its mammoth Harbour City mall is less reliant on luxury sales.
Still, performance might have been weaker had Swire left things as they were. “The revamp of our tenant mix has put us in a strong position for 2017, especially with sales at our mall improving since mid-2016, even amid a very challenging retail market,” said Fiona Shiu, general manager of Pacific Place.
Pacific Place mall has posted sales growth in the first two quarters of this year. Traffic had been encouraging, with increased car park use, it said. “We are confident that this positive trend will continue,” said Shiu.
While Burberry, Diane von Furstenburg Studio LP and LVMH Moet Hennessy Louis Vuitton have decreased the size of their stores in Pacific Place, they aren’t pulling out altogether. Coach, which no longer has an outlet in the mall, said it was investing to renovate its locations, here, and remained committed to the market.
“It’s a cycle, luxury brands won’t abandon Hong Kong, they will reduce the number of their stores,” said Nicholas Bradstreet, a managing director at Savills Plc, here. “Hong Kong has always been very resilient, but there is a caveat, it is not going to bounce back to the heyday of 2013.”
Swire’s new tenants include a barber salon cum whisky-tasting spot and a Japanese green tea dessert shop, services you can’t get online.
“More owners are trying to bring more traffic in and they have to increase the dwell time,” said Bradstreet. “Consumers who spend more time in a shopping centre are going to spend more money.”