The State of Hong Kong Retail Amid Raging Social Unrest

Waning tourism and foot traffic as a result of protracted pro-democracy protests in Hong Kong are forcing many brands and retailers doing business in the area to question their next steps.

Some fashion houses including Prada and Louis Vuitton have reportedly considered closing their stores in the area, potentially overhauling the retail landscape of famed Hong Kong shopping thoroughfares like Causeway Bay.

“We see that luxury brands, as well as many retailers currently in Hong Kong, are consolidating their footprint in the city by relocating shops to more strategic locations and downsizing shops that were underperforming,” observed Lawrence Wan, senior director of retail advisory and transaction services at CBRE’s Hong Kong branch.

As more such companies exit Hong Kong, those storefronts are expected to be filled by brands looking to take advantage of cheaper or short-term leases, such as pop-up shops.

“Lower rents will potentially attract more overseas retailers who have been waiting for a more affordable moment to enter Hong Kong,” Wan said. “From a longer-term perspective, Hong Kong is expected to remain a key strategic spot for international retailers that value the city’s diversity and vibrancy.”

This week, the Wall Street Journal reported that Prada intends to vacate the 15,000-square-foot store on Russell Street when its lease expires in August. (Prada declined to confirm the report and offer further comment.)

Louis Vuitton is also said to be firming up plans to close one of its Hong Kong stores. According to a South China Morning Post article published early this month, the LVMH-owned label, which operates eight stores in Hong Kong, is shuttering its location in the Times Square Mall. (LVMH reported a 25% decline in its Hong Kong sales in the third quarter.)

According to Cushman & Wakefield, the famed Causeway Bay — a shopping scene housing brands like Chanel, Dior and Max Mara — has suffered the most amid ongoing protests that have led to disruptions in business. The area recorded a 7% drop in rentals quarter over quarter; however, real estate researchers also saw rental declines between 3.6% and 5.9% in all other major retail districts in Hong Kong.

“Declining retail sales and interruptions to business due to the social unrest put increasing pressure on retail rents, which through the first half of the year, had been climbing in most submarkets,” Cushman & Wakefield wrote in its latest report on the region, released in September. “With no end yet in sight to the social unrest roiling Hong Kong, market sentiment in the city’s retail sector is set to remain dismal in Q4 with rentals coming under continued pressure.”

Data shared last week by the Hong Kong Tourism Board showed that visitor numbers over the last six months of 2019 plummeted by 39% compared with the same period last year. It added that retail along with tourism and catering were three of the sectors that recorded the greatest losses, with store receipts falling by 25% in October and November. Further, a report released last month by the Hong Kong Retail Management Association estimates that 7,000 retail locations out of 64,000 registered would be shuttered in the months to come.

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