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Author:xcd   Article source:  Hits:1425  Add time:2009-7-25  
Three months ago, John Hardy, a Bali-based jeweller, opened its first store in Hong Kong, inside the International Finance Centre, one of the city's main luxury shopping malls.
The timing might have seemed ominous. Hong Kong had just entered its first recession since 2003. The shop's inauguration coincided with a round of job cuts by Hong Kong's financial institutions, some of them also housed within the IFC.
The store has, however, since performed above expectations, including a “very good” February that, according to Guy Dernoncourt, John Hardy's chief executive, was about 50 per cent above the company's budgeted forecast. The jewellery is getting sold “almost at full retail price,” Mr Dernoncourt says, with occasional discounts “more because that is part of the Asian mentality rather than because there is a crisis.”
Indeed, Mr Dernoncourt says that John Hardy is on track to open a second, larger Hong Kong store before year-end. And, while few other fashion executives might be thinking about expansion now, many do argue that Hong Kong is holding up well thanks essentially to a continued influx of visitors from the Chinese mainland.
As Paul Cadman, Asia-Pacific chief executive for the Italian fashion house Salvatore Ferragamo, explains: “The business environment has been getting worse in mature markets. Although Hong Kong is one of these, the continued influx of leisure and business tourists offsets this downturn. Stores [that make a] large portion of [their] sales to mainland tourists, therefore, are holding their own, such as our flagship in Canton Road.”
Executives of luxury brands differ in their assessment of what proportion of their Hong Kong sales to ascribe to mainland buyers, with estimates ranging from 40 to 80 per cent. But the mainland's importance has clearly soared over recent years, not only for Hong Kong but also for the neighbouring gambling centre of Macao, which recently suffered a major economic blow when Beijing tightened its travel visa regime.
Morgan Parker, president of the Asian arm of Taubman Centers, a leading shopping mall developer, suggests that the performance of Hong Kong stores can, in part, be measured in terms of how close they are to the traditional hunting grounds of mainland shoppers. Elements, Hong Kong's newest shopping mall, was built above a train and bus terminal that connects the Kowloon district directly to Shenzhen airport, on the Chinese mainland.
“The Chinese consumer has become crucial to Hong Kong,” says Parker, “particularly for luxury retailers, and there seems to be no noticeable abatement in the number of shopping-orientated visits by mainland Chinese ... My observation, based on retail industry discussions, is that sales in Hong Kong island stores are now a little bit softer than in Kowloon. Chinese tourists tend to stay in Kowloon hotels but it could be that the propensity of Hong Kong residents to consume is waning a bit.”
That might also explain why mid-range brands that are not top of the shopping list for mainland visitors are taking a bigger hit. Underlining the difficulties in that segment, one of the earliest and most high-profile victims of the economic downturn was U-right, a listed Hong Kong fashion brand that went bankrupt last October.
Paul Ho, Hong Kong retail manager for the Italian denim brand Miss Sixty expects sales in the mid-range segment to fall by an average of 20 per cent this year, although he predicts that his company, which has eight stores in Hong Kong, will limit the decline to between 10 and 15 per cent.
He admits, however, that “we might be closing one or two [stores],” to rein in costs and to respond to widening discrepancies in the performance of his stores. “The sales drop in most stores compared to last Christmas was about 10 per cent, but we were actually up in a few places,” he says, including in Sogo, a giant department store in Causeway Bay. “Sogo is a place where we rotate merchandise very frequently and people right now are just not going to come back to a shop if they don't find straightaway the right size.”
Similarly, an executive of a leading European brand says that at least one smaller Hong Kong outlet is currently “under review,” given the widening gap between its profitability and that of the flagship store. “Managing a slowdown does require some adjustments, both in terms of surface area and inventory, but the China story remains one of growth rather than collapse,” he says.
His company was also among many leading brands that, in order to reduce excess inventories before year-end, held Hong Kong sales early – last November – offering discounts on shoes and handbags of as much as 70 per cent. In previous years such sales would typically take place after the Christmas spending spree.
Still, executives believe that, if anything, the downturn will highlight the robustness of a Hong Kong market where high property prices helped to keep retail development in check during the recent boom years.
Parker from Taubman says: “Yes, the economic downturn will free up some space, and some marginal businesses will relocate to cheaper space or even close stores, but there is no risk of a major imbalance in the Hong Kong retail property market because there are simply no big new mall projects here.
“The waiting list for prime shopping malls is still pretty long. It's not like in Japan where we are now seeing signs that the retail market is cracking.”
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