Louis Vuitton is set to become the second major fashion brand to opt not to renew a lease in Hong Kong since the start of the city’s pro-democracy protests seven months ago, as retail sales plunge in the Asian financial hub.
The Paris-based company best known for its LV-monogrammed bags is said to have decided to close its store in Times Square when its lease expires in June, according to sources familiar with the matter cited by the South China Morning Post.
Industry sources reported that the brand’s decision was triggered by a refusal by landlord Wharf Properties to reduce the HK$5 million ($640,000) in monthly rent the luxury retailer pays for its 10,000 square feet (929 square metres) in Causeway Bay, despite the city’s declining retail environment.
Falling Sales Force Causeway Bay Closure
“All lease renewals and new leases will, as always, be mutually agreed with tenants based on prevailing market conditions,” Times Square, which is owned by Hong Kong-listed developer Wharf Holdings, said in a statement.
Louis Vuitton, which is paying HK$500 per square foot per month for its bit of the most expensive retail strip in the world, had not replied to enquiries at the time of publication.
The high-end fashion retailer made 6 percent of its global revenue in Hong Kong in 2018, but its sales have plummeted since the start of the city’s pro-democracy protests in June, with the company reporting a 40 percent drop in August and September compared with the same two months in 2018.
When the retailer announced its third quarter results in October, Louis Vuitton’s chief financial officer, Jean-Jacques Guiony, said the company would “try to react to the situation” in Hong Kong by lowering its cost base, particularly its rental costs.
With another store just 300 metres away in Hysan’s Lee Garden One tower, the French brand has eight stores all together across the city, and has indicated that it plans to open a ninth at Hong Kong International Airport.
LV Joins Prada In Choosing Not to Renew
The company’s decision to close up shop in Times Square comes five months after rival Prada announced in August that it would not be renewing the lease on its flagship Hong Kong location in Plaza 2000, which is located on the same block as Times Square in a retail strip rated by Cushman & Wakefield as the most expensive in the world in a survey conducted just last June.
Prada is paying HK$9 million in monthly rent for its 15,000 square foot Russell Street location, or around HK$600 per square foot per month, with the lease set to expire in June — the same month as Louis Vuitton’s deal comes to an end in Times Square.
Visitors to Hong Kong have kept away from the city as shopping malls – including Times Square – have been a regular target of pro-democracy protesters, leading landlords such as Swire to offer tenants rental assistance in the face of falling sales.
The latest statistics according to the Hong Kong Tourist Board show that overall visitor numbers for November were down 56 percent — falling from last year’s six million to 2.6 million — while visitors from mainland China were down 58 percent from 4.6 million to 1.9 million.
Collapsing Retail Sales
The plunge in visitors has contributed to collapsing retail sales, with the latest data from November showing a 25 percent drop compared with 2018, the tenth consecutive month of declining retail activity.
Other luxury brands besides LV and Prada have also seen their Hong Kong sales take a hit. Kering, which owns Gucci, Yves Saint Laurent and Bottega Veneta saw its Hong Kong intake drop 35 percent in the third quarter, while sales at outerwear maker Moncler fell 40 percent.
Crumbling Hong Kong Retail Rents
Ten months of falling sales have had an impact on rents in the city, with rents across Hong Kong estimated to fall by ten percent during the fourth quarter, compared to the previous three months, according to Cushman & Wakefield.
The property services firm has predicted that Causeway Bay will see a quarterly drop of 8.5 percent in the fourth quarter, while Central rents will fall 9.8 percent.
“Retail sales, particularly among businesses that rely on tourists, will face negative prospects in the near term in 2020, and rentals across all the submarkets are expected to drop by double digits, led by Causeway Bay in the range of 12 percent to 14 percent,” said Kevin Lam, Cushman & Wakefield’s executive director and head of retail services in Hong Kong.