Rents come under pressure
Yvonne Liu
Updated on Oct 29, 2008
Retailers are asking landlords for rent cuts, scaling back operations and suspending expansion as sales decline.
"Sales volume in August and September dropped about 10 per cent, compared with the same period last year," said Lawrence Ng Man-kit, a deputy managing director of footwear wholesaler and retailer Mirabell International Holdings.
The retail market had been hit by the drop in overseas visitors and the global financial crisis, Mr Ng said.
"October is the opening season for retailers," he said. "The products for autumn and winter have just begun to be launched.
"Retailers' profits rely greatly on sales of the new collection. But you would find many retailers are already having sales this month."
Mirabell, one of the major footwear retailers in Hong Kong, has 123 shops in Hong Kong and Macau.
Sales volume in March, April and May were still higher than that of a year earlier. However, Mr Ng said sales in the past four months fell, particularly during the Beijing Olympic Games in August.
Taking into account that more than 30 per cent of the operating cost of a shop is rental expenditure, Mr Ng said the company would ask landlords to cut rents of shops in tourist areas.
"Shopowners raised rents sharply in the last two years. Retailers who opened new shops or renewed their leases during the period were under strong pressure while the retail market turned weak in recent months," he said.
Business is also slowing in Macau. "We have 18 shops in Macau. But the business has been hit by the new policy of allowing mainlanders one visit per month each to Macau," Mr Ng said.
"We may have to close branches in prime areas [in Hong Kong and Macau] if landlords are not willing to cut rents to our requested target."
He expected retail rents would drop at least 25 per cent after a 50 per cent increase last year.
Koo Tong-fat, a director at Chow Tai Fook Jewellery, one of the major jewellery firms in Hong Kong, said the company had 50 branches in Hong Kong and Macau.
"Early this year, we planned to open about three new shops in Hong Kong," Mr Koo said. However, the plan had been put on hold due to the poor market sentiment.
"We will consider closing branches in non-core districts such as the New Territories or Kwun Tong which are performing poorly. We have closed the branch in Chai Wan, but we won't close shops in prime shopping areas,"
Vincent Tse Moon-chuen, a director at Luk Fook Holdings International, said the firm's expansion plan had been suspended as the company expected the weakening retail market to last a few years.
"Business from mainland shoppers drops slightly during the weekdays, but the business during Friday, Saturday and Sunday remains stable," Mr Tse said.
Owing to the uncertain market outlook, he said: "The leases on some shops will end soon. We will negotiate with landlords to cut the rents."
