Hong Kong luxury retailers mulling strategy overhaul

Due to slowdown in luxury retail sector.

A report from CBRE reveals that whilst Asia Pacific is experiencing a slowdown in the luxury retail sector, some emerging trends are set to provide a new stimulus for demand in the coming years, and that this is particularly relevant in Hong Kong.

According to a release by CBRE, this is based on its latest special report, The Future of Luxury Retail in Asia Pacific: New Demand Drivers and Shifting Occupier Requirements.
In the territory, sluggish luxury sales have resulted in a substantial decline in prime rents, and luxury retailers are under pressure to review their business strategies. Some brands are now considering alternative approaches such as affordable luxury and F&B in response.

The Asia Pacific region accounted for one-third of personal luxury good sales globally in 2014. China and Hong Kong are two of the most penetrated luxury retail markets in the region, at 89% and 81% respectively.

However, following several years of rapid expansion, these markets are approaching saturation point. “In view of the slowdown of luxury retail sales, many retailers are consolidating their existing store networks, and luxury groups are asking for rent cuts, driving down prime rents in Hong Kong continuously in 2015,” said Joe Lin, Executive Director, Retail Services, CBRE Hong Kong.

Here’s more from CBRE:

“We expect that lower rents in tier one streets will set new benchmarks for lease negotiations in the coming months. While non-luxury brands will become more proactive in leasing spaces in prime locations, luxury retailers are also introducing secondary lines at accessible prices, known as ‘affordable luxury’, to target a broader section of consumers,” Lin said.

The emerging retail trends—combined with changing tourism patterns and the ongoing slowdown of Hong Kong’s luxury retail sector—are already impacting luxury retailers’ real estate requirements, resulting in new, and in some cases, weaker demand for different types of retail property.

Some of the key trends that CBRE have identified include weaker interest in department stores despite continued interest in prime locations; and stronger focus on flagship stores, displaying more product lines, thus making a stronger statement in the market.

These also include increased popularity in short-term opportunities for brands to set up exhibitions, pop-up and concept stores, and workshops, to generate greater consumer awareness; affordable luxury brands continuing to drive demand, encouraging more shopping center landlords to offer them anchor tenant space.

Lastly, this also includes more interest in upper floor retail space, but limited to top-tier malls and driven by F&B and childrenswear segments.

Driven by the emergence of affluent consumers and the rise of the number of millionaires in the region, Hong Kong will remain an important market for international luxury brands as new names enter the region. While leasing demand will slow to a more sustainable level, prime space in core areas will continue to be keenly sought after.