Retail in Asia

In Trends

Hong Kong protests leave malls empty and… the landlords?

Source: SCMP

Number of tourists coming to Hong Kong keeps dropping as protests and increasing violence deter visitors, hotels start closing floors with occupancy rate below 30%. Malls are empty, same are the streets.

SEE ALSO : Protests and world’s most expensive rent, not a good cocktail for Hong Kong retailers

In the past three months, Chinese travellers have disappeared taking with them any hope for retailers to be able to afford their rents with average sales drop of 30 to 60% in the month of August across all luxury brands.

Local Hong Kong consumers are not in the mood for shopping, pushing most of the brands to cut their marketing budgets, cancelling major events and looking at other Asia countries to develop their business and invest.

After over three months of social unrest movement spreading uncertainty about the future of Hong Kong, September does not look any better. For a majority Hong Kong government has reacted too late to the people’s demands, and landlords are not acting differently ignoring retailers’ requests for support in what appears to be probably the worst retail crisis in Hong Kong history.

The tourism board is warning that “The travel trade has reported that the number of forward bookings in September and October has also dropped significantly.”

Annie Tse Yau On-yee, chairman of the Hong Kong Retail Management Association, said August’s retail sales would deteriorate further based on preliminary feedback from some of its 9,000 members.

She said some members’ sales in tourist districts had slumped 50 percent while those in areas affected by the protests had fared even worse, experiencing falls of about 80 percent.

Tourist areas such as Causeway Bay, Wan Chai and Admiralty were hit by protests along with the residential districts of Wong Tai Sin, Sham Shui Po, Sheung Shui and Tai Po. However, in recent weeks, flash mob protests moved from part of the city to another creating chaos across different areas. Hong Kong International Airport has been targeted for several days making Hong Kong inaccessible for days and discouraging travellers.

“Retailers are pessimistic about the outlook in September as well,” Tse said. The association earlier this month urged landlords to halve rents for six months for retailers, but at best only a few street landlords offered a 20 percent cut on a one-off basis, she said.

End of August, most of the brands reached out to their landlords to renegotiate their rents  without any success, besides only one prime shopping mall on Hong Kong island that has shown some concrete actions by agreeing on special terms for 6 months.

Most shopping malls are owned by large real estate companies listed such as Wharf, Sun Hung Kai, Henderson Land, Hongkong Land, Hysan, just to name a few, and therefore, the major worry for them remains to keep the share value high, regardless the fact that their tenants’ business has become unsustainable. Their shares bounced back after the extradition bill withdrawal announcement.

Today if the majority of landlords continues to buy time hoping for the situation to be solved, some retailers will be forced to shut down their shops, early surrender their locations losing their deposit and let go their front staff as their losses will unbearable.

The formula of malls retail rental fee in Hong Kong includes a basic rent + commissions on sales, but the very high basic rental fee always factored the 50M Mainland Chinese shoppers. The F&B industry has already registered victims, and some businesses have put on hold new openings.

This situation is spotting the ephemeral and volatile nature of the economy in a place, where Tycoon landlords are after their own interest only and do not protect their tenants, who have been hoping to join forces with them to re-establish normality in rent.

The era of Hong Kong as Eating and Shopping paradise will change dramatically if landlords do not realize that this crisis cannot be compared to previous ones (SARS or the financial crisis), this is far worst and some malls will have no reason to exist soon.

It is not only about business, it is about thousands of people who are about to lose their job and a key sector for Hong Kong economy which is now is danger.

SEE ALSO : Hong Kong’s tourism industry is suffering from the protest

Brands and retailers, despite the size of their businesses, all share the same plague at the moment, and they should all join forces to open a dialogue with landlords and make sure that all of them, big and small, are able to survive this critical moment.