("Mass-Market Retailers Head To Hong Kong With Eye On China," at
10:31 EDT, misstated the domicile of Compagnie Financiere Richemont
in the second paragraph. The correct version follows:)
By Jason Chow
Of THE WALL STREET JOURNAL
Mass-market retailers are flocking to Hong Kong, one of the
world's top luxury-shopping cities, driving up rents for retail
space in their effort to market themselves to mainland Chinese
consumers.
Abercrombie & Fitch Co. (ANF), Gap Inc. (GPS), Apple Inc.
(AAPL), Forever 21 Inc. and American Eagle Outfitters Inc. (AEO)
are the latest retailers to open outlets or plan openings in Hong
Kong. In a sign of the times, Abercrombie is moving into a prime
spot in the historic Pedder Building in Hong Kong's Central
district, replacing the long-time tenant, Shanghai Tang, a
Chinese-styled luxury retailer now owned by Compagnie Financiere
Richemont SA (CFR.VX, CFRUY)of Switzerland.
Abercrombie will pay seven million Hong Kong dollars
(US$901,000) per month for a 25,000-square-foot store, more than
twice what was paid by Shanghai Tang, according to a report by real
estate firm Cushman & Wakefield. Neither Savills, the
real-estate firm that worked on the deal, nor Abercrombie would
confirm the figures.
In recent years, luxury stores such as Prada, Louis Vuitton and
Gucci have been among the big sellers in Hong Kong. But commercial
real-estate insiders say an influx of foreign retailers geared to
the mass market is pushing up store rents in the city's
most-desirable locations. The average annual rent for retail spaces
in the Causeway Bay shopping district has risen 34% in the past two
years to US$1,849 per square foot, says Michelle Woo, a senior
director at Cushman & Wakefield.
While retail sales in North America and Europe have been hit
hard by the global economic slowdown, sales in Hong Kong have been
growing fast. Retail sales in the city rose 20% in the first
quarter of 2011, compared with the previous year, according to the
city's Census and Statistics Department.
A significant factor is the uptick in the number of mainland
Chinese tourists visiting Hong Kong. In the first four months of
this year, 6.5 million Chinese tourists came to the city, up 17.5%
from last year. Many are drawn by Hong Kong's prices, which can be
as much as 40% lower than they are over the border because Hong
Kong doesn't tax retail sales.
American brands are following in the footsteps of European
retailers, according to Nick Bradstreet, head of leasing at
Savills.
"The Europeans trailblazed first," he says, pointing to the
plethora of luxury brands in the city, as well as Zara and H&M,
which came to Hong Kong in 2004 and 2007, respectively. "Europeans
are more comfortable crossing borders than Americans are. For a
German company going to Spain, it's not a big deal. But in the
U.S., the domestic market is so big. They haven't always had to go
overseas to grow."
Real-estate agents say Abercrombie fought off tough competition
from several parties to secure the lease. Shanghai Tang, which has
been in the Pedder Street location since it was founded in 1994 by
Sir David Tang, declined to comment.
"We love iconic buildings, which we think we got with the Pedder
building," says Eric Cerny, Abercrombie's manager of investor
relations. He adds that the company was scouting locations for a
new Hong Kong store for three years. The nine-story building was
built in 1923 and its neoclassical arches and columns make it stand
out in a city dominated by skyscrapers. The building was the
headquarters of Hong Kong trading firm Jebsen & Co. from 1926
to 1992.
Kevin Lam, a director at real-estate agent DTZ, says some new
entrants to Hong Kong may be willing to pay more for a good spot
because it will help them advertise their brand to Chinese
shoppers.
"One of the major elements of their flagship stores is huge
signage and signage is part of the marketing tool to advertise
their brand awareness," Lam says. "I know some brands would like to
allocate their marketing budget with their rental figures. It makes
the rent look more reasonable."
Abercrombie is following in the footsteps of American Eagle,
which opened an 8,500-square-foot space in the busy Tsim Sha Tsui
district of Hong Kong in March. The store is the brand's first in
Asia, though more openings are planned.
American youth fashion line Forever 21 is slated to open a
50,000 square-foot store, costing HK$11 million per month, in the
Causeway Bay district by the beginning of next year, while Gap
plans to open its first store in Hong Kong this year. The 20,000
square-foot store will command rent of HK$5 million per month, says
Cushman & Wakefield's Ms. Woo, who worked on both deals.
The trend isn't confined to clothing. Apple, whose products have
previously been available in Hong Kong through licensed resellers,
is also moving into Hong Kong. The company announced in February
2010 that it would open 25 stores in China and Hong Kong over a
two-year period. One of the new Apple stores will open later this
year in a two-story space in the mall at the International
Financial Centre, according to people familiar with the matter.
-By Jason Chow, The Wall Street Journal;
jason.chow@wsj.com