Hong Kong is a vibrant city with a consistent rhetoric of newness, which characterizes its retail landscape. It is also strategically located in southern china, allowing access to the growing Chinese economy, making it an attractive entry point for many western companies entering into Asia.
SEE ALSO : Rent a pop-up space
However, the retail haven is not without its cost, the typical rent commitment in high-rent areas is 3 years (36 months), with an annual increment of around 10%. The commitment or the lease liability could range up to millions of HK dollars.
While targeting Hong Kong, market research is a pillar in the definition of a successful strategy.
Central is home to many international brands and it is an iconic landmark in Hong Kong.
Daytime, Central is a dynamic location. It hosts high-end shopping malls such as IFC and Landmark, and it is the financial centre. Night time, Central becomes the expats’ destination for fine dining and parties. Given the high daily traffic, and its privileged location for offices in the heart of the city, retailers target the area to position their brand in the high-end segment and attract affluent working class.
For example, Adidas now occupies the 36 Queen’s Road iconic corner retail space for a monthly rate of HK$ 4.3m. This is a 13,000 sqft retail location was previously rented by Coach for a monthly rent of HK$ 5.6m. The total rent commitment upon signing a lease to consider would be HK$ 171m.
A way of deciding whether it is worth it the investment is to open a pop-up store in a similar location.
Temporarily renting a corner store located in a prime area of Central, with same visibility and opportunity to attract in-store traffic to experience the products could allow brands to test their business concept, collect information on the market and target customers, all while having the opportunity to generate sales potentially several times that of the West.
Based on Retail in Asia internal simulation, an average performing store in Central could generate sales from HK$1.0m or above per month if correctly positioned for the market. In which case, the profit excluding marketing and depreciation would be in the range of 40% of sales at this location.
Even if sales drop to HK$600K, the project would still be able to generate a 12% profit excluding marketing and depreciation. In comparison, a typical focus group marketing study would cost up to HK$ 100K per study, with potentially ambiguous results that adds little to the final market entry decision.
In addition to financial benefits, a pop-up shop provides the opportunity to test the products and their marketing scheme, generate feedback directly from the customers.
In this case, the value of 3 to 6 months of operational data can easily dwarf the value of a marketing research.
In planning a pop-up store, brands need to elaborate localized plans tailored to the business, assess the sales projections, produce a profitability study, but also choose the right innovative technology to improve the in-store customer experience and increase the traffic through digital media plan.
For more information about this topic, please contact our InTelligence Team.
Kevin has been working as the Financial Planning & Analysis Manager at Bluebell Asia since 2014. He is responsible for controlling the business planning and investment processes for the Group in Asia, working directly with the CFO of the Group. He is also deeply involved with several internal ventures in the group where he contributes by bringing order and information into the chaotic start-up environment.