Luxury Goods and Status Symbols in Trouble in China
A friend recently mailed us an article from the Hong Kong Standard which describes how extremely high retail shop rents in Hong Kong can no longer be paid even by retailers of luxury brands.
Gucci store in Hong Kong, Central
Photo via flickr
Not only is this testament to the fact that Hong Kong's real estate bubble has gotten out of hand quite a bit, but the waning demand for luxury goods is also highly interesting from a sociological and economic perspective. As the Standard reports:
Business is getting tougher for Hong Kong's retailers with the value of total retail sales dipping 1.6 percent in the first half of 2015 from a year back, according to the Census and Statistics Department's latest data.
Valuable gifts, including jewelry, watches and luxury goods, were hardest hit, with sales falling for 10 consecutive months. Sales value slumped 10.4 percent in June compared with a year earlier, despite efforts by several luxury brands – including Italian fashion house Prada – to boost sales by cutting prices. Squeezed by slimmer pickings in Hong Kong and the mainland market, top global luxury brands are looking to renegotiate store rents to cut costs.
The latest to plead for landlords' mercy was French luxury goods conglomerate LVMH. Revenue from its signature brand Louis Vuitton slumped 10 percent year- on-year in Hong Kong, Macau and China for the first half while Europe and the United States saw stronger sales of fashion and leather goods. It is also planning to close a directly operated shop of its biggest watch brand, Tag Heuer, in Causeway Bay.
British high-end fashion house Burberry, which has 16 shops in the SAR, said it may trim its local store network and negotiate for lower rents after the Hong Kong market, which accounts for about one-tenth of the brand's total sales, saw a double-digit percentage fall in sales over the period.
Meanwhile, Gucci owner Kering said it will consider closing its Hong Kong and Macau outlets if rents stay high.
Waning sales and whopping rents have sent Italian fashion label Baldinini packing. It shut its first and only flagship boutique in Hong Kong after just four months in operation, ending its three- year contract.
In June, visitor arrivals from the mainland were down 1.8 percent year- on-year. Adding to the woes of luxury goods vendors are the changing spending patterns of mainland visitors, who are now looking for more mid-priced products.
