Louis Vuitton, the century-old French retailer at the top of the LVMH Moet Hennessy conglomerate of luxury brands, was paying an estimated HK$5 million (US$642,000) in monthly rent at its Times Square branch before deciding to close its outlet in the world’s most expensive main street, according to industry consultants.
The retailer of luxury bags and clothing, best known for its signature LV monogram, occupies 10,000 square feet (929 square metres) on the second floor of the nine-storey Times Square shopping centre, owned and operated by Wharf Real Estate Investment Corporation.
LV decided to close the store after Wharf refused a request to lower the rent, sources familiar with the matter earlier told South China Morning Post. LV did not respond to requests for comment. Times Square said all lease renewals and new leases will, as always, be mutually agreed with tenants based on prevailing market conditions.
“As Times Square has signed confidentiality agreements with all tenants, we are not in a position to disclose any information relating to the lease negotiations, nor arrangements,” it said in a statement.
The imminent closure of the store – one of eight LV boutiques in Hong Kong – makes the French retailer the second luxury brand to succumb to shrinking foot traffic since anti-government protests deterred visitors and forced many shopping centres in the city to shut.
The Milanese clothing and leather goods retailer Prada plans to close its store at Plaza 2000 when its HK$9 million (US$1.2 million)-a-month lease expires in June 2020, its landlord Early Light Group said last August, as Hong Kong’s protests began to gather momentum.
One of the worst political crisis in Hong Kong’s history, culminating in millions of city residents taking to street marches that have ended in frequent clashes between radical protesters and police, has taken its toll on the city’s services industry. Retail sales plunged 23.6 per cent in November, the biggest monthly drop on record, as visitors and shoppers stayed home.
Sales of luxury goods including jewellery, watches and clocks and valuable gifts were particularly hit, dropping 46 per cent in November, from a year ago.
“Besides high rent, the decline in retail sales also sparked luxury brands to consolidate their operations in Hong Kong,” said Helen Mak, senior director and head of retail services at Knight Frank.
“As retail sales continue falling, luxury brands may consider shrinking their number of outlets in Hong Kong.”
Before the protests, LV had announced a plan to open its ninth outlet in the city at the Hong Kong airport. With HK$25 million per month in estimated sales, the Times Square store contributed handsomely to the retailer’s income, according to people familiar with the industry.
Under the common practice in Hong Kong, landlords charge either the base rent or a lease that is a percentage of sales, whichever is higher, agents said.
Mainland Chinese tourists, the largest buyers of most luxury brands, refrained from visiting Hong Kong as they increasingly find themselves in the cross hairs of radical protesters. Only 2.64 million people visited Hong Kong in November, down 56 per cent from last year, according to the latest figures from the Hong Kong Tourism Board.
The slump is particularly felt in Causeway Bay, which boasted the world’s most expensive retail rent as recently as at June 2019 just before protesters began taking to the city’s streets.
Average rent in the district was US$2,745 per sq ft per year, 22 per cent more expensive than New York’s Fifth Avenue or New Bond Street in London, according to Statista. One in 10 shops in Causeway Bay now stand empty, agents said.
JLL forecast prime retail rents for high street shop would fall up to 20 per cent in 2020, after a 18.4 per cent decline last year, while 5 per cent decline at prime shopping centres in 2020. Last year, retail rents at shopping centre fell 5.6 per cent.
More from South China Morning Post:
- Causeway Bay retail landlord offers to cut rent by 44 per cent as Prada closes flagship store next year amid dwindling foot traffic
- Chanel, Rimowa delay new stores, Prada moving out, sales plummet at Moncler, Gucci – will Hong Kong become city of ‘ghost malls’?
- Causeway Bay’s retail vacancy rate to soar, with one in 10 shops standing empty as Hong Kong’s street rallies enter their 15th week
- Causeway Bay’s Russell Street trumps 5th Avenue in New York as the world’s most expensive retail rental market