Italian lingerie brand La Perla is poised to lose its flagship store in Hong Kong’s prime Causeway Bay shopping district, after allegedly defaulting on HK$9.21 million ($1.18 million) in rent.
After the high-end bra brand threw a star-studded party to open the five-storey flagship store across from the Times Square mall just over two years ago, La Perla’s landlord claimed in a writ filed to the High Court that the company failed to pay its rent for January and February.
The company owned by Italian business celebrity Silvio Scaglia is said to have ignored repeated demands for payment, and was late in ponying up December’s rent, according to an account in the South China Morning Post.
Setting Up on Asia’s Priciest Retail Strip
La Perla moved into its 8,000 square foot space in Causeway Bay in September 2015, renting space from a subsidiary of tycoon Albert Yeung’s Emperor International. At the time, the two parties had agreed to a monthly rent of HK$7.5 million ($958,665) over a five-year term from 2015 to 2020. The rent was later reduced to HK$5 million ($639,102) from April 2017 to April 2018.
La Perla’s opening gala was ranked by some as Hong Kong’s best party of 2015, and featured models Liu Wen and Hu Bing as well as fashion personalities Chelsea Chau, Faye Tsu, and Feiping Chang. In line with that star-studded event, the lingerie brand’s location on Russell Street in Causeway Bay is the most expensive retail location in Asia, and La Perla rubbed shoulders there with shops run by more established marques such as Prada, Burberry and Omega.
La Perla paid handsomely for its prestige address, where its rent worked out to approximately $960 per square foot per year for its space. Rents on Russell Street range from HK$600 to HK$1,500 per square foot per month ($922 to $2,304 per square foot per year), according to a recent report by consultancy JLL. , and property consultancy Cushman & Wakefield reported last November ranked Causeway Bay as the second priciest retail location in the world, second only to New York’s Upper 5th Avenue.
The Italian label has stores across 41 markets worldwide, most of them in Europe. In addition to the flagship outlet in Causeway Bay, La Perla has three other branches in Hong Kong, located in Admiralty and Tsim Sha Tsui. Chinese investment group Fosun was reported to be in exclusive talks to take over the company last December.
Struggling to Sell 5,000 Bras a Month in Causeway Bay
Despite La Perla’s high end ambitions — bras typically sell for $500, while a nightgown can cost as much as $2605 — the label failed to win adequate support from the local market.
La Perla is still a relatively niche player as compared to luxury giants like LVMH and Kering, said Theodore Knipfing, Managing Partner of Plus Curiosity, a Hong Kong-based retail consulting firm. Big luxury groups justify high rents in strategic locations for marketing and public relations benefits, in addition to their primary purpose of selling, he added.
For retailers, rent should be kept below 25 percent of sales for long-term sustainability, Knipfing recommended. “If rent is approximately $1 million a month, that means revenue has to be at least $4 million a month, or almost $50 million a year,” he said. “You don’t have to be a retail expert, to know those are very optimistic numbers for any brand focused on lingerie, nightwear, and beachwear.”
Hooters Sags Under Rent Burden
The eviction case comes less than a month after a landlord sought to repossess two premises on Wyndham Street in Central occupied by US restaurant chain Hooters. The eatery known for its scantily clad waitresses was said to owe the landlord Dor Fook Company HK$1.5 million ($191,730) in rent.
“Hong Kong rents have dropped a lot from their peak, but that does not mean that they are reasonable,” said Knipfing. “They are still high, and many retailers struggle to make the numbers work.”
Hong Kong’s prime street shop rents dropped by 10 percent last year, according to Knight Frank. The brokerage expects the rental decline to slow to a range of five to ten percent in 2018.