Luxury brands shrinking their stores network in Hong Kong

As reported by the ‘Want China Times’, international luxury brands are feeling the pain from China's slowing economic growth, with many planning to shut down their stores in Hong Kong due to lethargic retail sector sales and mounting rental costs in the special administrative region, ‘Shanghai's China Business News’ reports.

Tag Heuer, part of the LVMH group, is planning to close its store as high rental costs and declining numbers of customers weigh on profitability, according to sources close to the matter.

Meanwhile, Hong Kong-listed Chow Tai Fook Jewellery Group plans to shutter two stores in Hong Kong due to a 20 percent-30 percent fall in the number of customers and sluggish sales, the report said.

Thus, many international high end and luxury brands are slowing down their pace of opening new stores or closing outlets in the Greater China region. For example, figures showed that in the first quarter of this year, the number of Prada stores in China stood at 33, compared with 49 in 2014, while the number Armani outlets dropped from 49 to 44 and the number of Chanel stores was halved to 11.

In fact, the Asia-Pacific region in general and China in particular, constitutes Prada’s most important market, which has showed a “similar negative trend” to the first quarter, when Greater China sales fell 19 percent excluding currency effects, Prada said.

Revenue in its wholesale business dropped 14 percent as Prada has trimmed its network of distributors, recalls Reuters. The company is also opening fewer stores and introducing more bags priced lower.

Sales were “worse than feared,” said Luca Solca, an analyst at Exane BNP Paribas. The company’s efforts to broaden its focus beyond high-priced products should leads to improvements in the second half, he said. “We expect to hear less and less bad news from Prada.”

Although Chinese shoppers remain the world's major consumers of luxury goods, the country's slow sales growth in the luxury sector is pushing international brands to rethink their strategy in China.

Chinese shoppers spent around 380 billion yuan or 61 billion dollars on luxury products in 2014, accounting for 30 percent of the total luxury goods traded worldwide. However, sales of luxury goods slowed in China during last year.

In the next few years, luxury brands like Louis Vuitton, Gucci and Prada are expected to continue closing their stores in Hong Kong and shift their business focus to other regions, such as Japan and Europe, industry experts point out.