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China's luxury brands eye Hong Kong

News, 25 September 2015

HONG KONG: Falling rents in Hong Kong's prime shopping districts are attracting a new wave of Chinese luxury brands to the city, even as mall space on the mainland continues to grow.

Jeweller Lao Feng Xiang, for example, has almost 3,000 stores across mainland China, but has only recently opened two locations in Hong Kong. "This year is the best time to enter Hong Kong, an opportunity that we have waited for years," marketing manager Wang Ensheng told Bloomberg.

"The fact that Lao Feng Xiang opened stores in Hong Kong boosted our reputation," he added. "Mainland consumers know that we are now a player in this international jewellery hub."

Tom Gaffney, head of retail at property agent Jones Lang LaSalle, reported working with 12 Chinese businesses to open stores in Hong Kong, up from six last year and three the year before. He described the trend as "a form of marketing".

Chinese tourists view a mainland brand with a store in Hong Kong or overseas as having better quality, he explained. They then carry the perception home and remain loyal customers back in China.

On the mainland, meanwhile, developers are building shopping malls faster than they can fill them with retailers as the economy slows and the ecommerce sector continues to grow.

This was highlighted in a report from Moody's, the ratings agency, reported by the South China Morning Post.

"In cities where mall space is abundant, vacancy rates have risen substantially," according to Marie Lam, Moody's associate managing director. "Demand for mall space from retailers in China is not catching up with supply."

On some estimates there will be around 5,000 malls across the country by the end of 2015 and not all will be successful, as, despite the numbers, there are relatively few experienced developers.

Figures from property agency Jones Lang LaSalle suggest most have built only one or two, and the implication is that the intent has been to sell them on rather than actually operate them.

Those ambitions, however, are up against a booming ecommerce sector. Online retail sales were up 48.7% in the first half of the year, according to the China e-Business Research Centre, while the economy overall grew at 7%.

Data sourced from Bloomberg, South China Morning Post; additional content by Warc staff