Retail in Asia

In Markets

Is it the last nail in the Hong Kong retail coffin?

Are the new social distancing measures entered in force on 15th July going to accelerate the Hong Kong retail crisis which was already in abyssal financial space?

SEE ALSO : Hong Kong protests leave malls empty and… the landlords?

With the new restrictions on all the F&B to be limited to take away after 6 pm, and temporary closure of clubs, gyms, bars, cinemas and more, cumulated with work from home or team shifts for many companies, traffic is expected to drop again further this week.

Many retailers are already adjusting down their opening hours from 11 or 12 to 7 or 8 pm working on a single shift in anticipation of what they have already experienced in March and April at the rock bottom of their business of this traumatic year.

First semester was a bloodbath for most of the retailers and F&B operators in Hong Kong battling with the drop of tourists, the social distancing, the local economy recession back to back with 6 months of social unrest.

The only positive news in town was the COVID-19 outbreak under control and Hong Kong as a safe place for tourists to potentially come back soon. In the matter of 10 days situation deteriorated super fast and the virus is clearly making progress with local transmissions in different part of the city. The only hope for retailers to see the long awaited travel bubble with GBA opening early August is gone.

The brands will have to go through their most difficult summer ever with rents in malls back to their normal levels for the majority  since May or June this year and unemployment rate shooting up.

The list of brands closing and consolidating stores at the end of their leases, or early terminating their contracts and entering in legal battles with their landlords because they are out of cash or strategically decided to hold their rental payments to negotiate reliefs is getting longer every week.

Among recent closures were Coach, Valentino, Victoria’s Secrets, Swatch, J-crew, Esprit, Gap, Lush, Folli Follie, TopShop, and the  list could go on and on. Many local employees are losing their jobs and the government’s ESS started in June will most probably be wasted if the real goal was to support employment in this sector.

Occupancy rate is now at its lowest level in different malls such as IFC, Times Square, Harbourcity, Langham Place, Moko with rate reaching 25% up, however, institutional landlords (at the exception of Swire, Hysan, Mapple Tree) are still contemplating this exodus using more and more legal actions and do not seem to compromise much with zero interference from the government under free trade market policy.

Sadly this may be the last summer of many retailers in the city where rents have been unsustainable for a year and did not adjust to cope only with local consumption.

The great hope for malls was supposed to be a sharp pivot toward experiences and services to make sure they would maintain their rental price at high levels. However, it is clear that indoor interaction is considered one of the riskiest activities during the pandemic – and thus many businesses such as cinema, gyms, F&B, and gyms have been considering those operations to shut down, with little promise of reopening soon amid an outbreak.

SEE ALSO : Why Hong Kong landlords are already considering cutting rent relief?

Retailers such as Inditex, H&M have already announced the reduction of their doors worldwide to focus on digital, there will not be the need of high numbers of doors for brands. What is it going to be the future of shopping malls in the coming years?  Landlords and retailers should try to work together to find a new winning formula and redefine the retail landscape in the city.