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Jeweller Chow Tai Fook announced plans to close around 15 of its 91 Hong Kong stores on Tuesday, a sign that the retail industry is starting to suffer in the city as it enters its eighth consecutive month of protests.
The shutterings will mostly take place in tourist districts such as Causeway Bay, Mong Kong and Tsim Sha Tsui, which have seen some of the most chaotic confrontations between police and protesters. A spokesperson from the Hong Kong-based brand, which is the second-largest jeweller in the world by value, stressed that Chow Tai Fook is set to open 600 points of sale in mainland China in the current year following on from recent expansion in the Philippines and Thailand.
The news signals a transformation for the retail landscape in Hong Kong as Chinese tourists are choosing to travel elsewhere or shop at home. According to the Hong Kong Tourism Board, around 2.7 million tourists arrived from mainland China in November 2019, a decrease from 6 million in the same month the previous year.
The protests that have gripped the cities for months have turned Hong Kong from one of the most lucrative locations for luxury brands to a problem with no clear solution. Swiss watch sales to the region fell by nearly 30 per cent year-on-year in November, according to figures from the Federation of the Swiss Watch Industry. Bain estimates that the protests cost retailers in the region €2 billion in sales during 2019.
These problems are compounded by high rents in Hong Kong, which can exceed HKD 5 million (£500,000) a month in tourist areas, says Veronica Wang, a partner at OC&C Strategy Consultants. Luxury brands including Gucci have opted for pop-ups, which are lower risk and lower lift, instead of opening permanent stores in the wake of protests. “A lot of stores are losing money every month. They are burning cash,” she says.
Luxury companies have been expanding more into mainland China for a number of years. The current political climate accelerated those plans, although many brands chose to wait and see if the protests would die down before acting to address their Hong Kong retail network. Now, as protests continue, the Hong Kong Retail Management Association estimates that about 7,000 businesses will close in the next half of the year.
The difference between the price of luxury goods in Hong Kong and China has also given Chinese shoppers less reason to travel, says Meng Shen, director of Beijing boutique investment bank Chanson & Co. Price differences on luxury goods between China and duty-free markets have been largely decreasing over the past few years.
A spokesperson for Chow Tai Fook says that the company had already announced plans to optimise its network in Hong Kong following its interim results in November and that there’s been no new change in the group’s direction. Nevertheless, the optics are not good for foreign investors and brands who will see a Hong Kong-based luxury group opting to retreat from the region.
Speaking to Vogue Business earlier in the week, Nicolas Santi-Weil, CEO of French brand Ami, said that the brand was weighing up whether to renew its Hong Kong store lease, which is its only franchise. “The rent is totally crazy in Hong Kong…I want to build a balanced business, so I would never put my money over there,” he said.
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