Azernews.Az

By Bloomberg

Luxury companies including Kering SA are demanding lower Hong Kong store rents to reflect the island city’s waning appeal with wealthy Chinese shoppers.

The owner of the Gucci brand may close some of its shops there if those costs don’t come down, Kering Chief Financial Officer Jean-Marc Duplaix said late Monday.

“Many landlords have not necessarily understood that the markets have changed,” Duplaix said, speaking on a conference call with analysts.

U.K. trenchcoat maker Burberry Group Plc said last week it may also try to lower its rent bill after sales growth slowed to a two-year low. Luxury spending in Hong Kong, one of the world’s largest hubs for high-priced shopping, has been suffering since China began discouraging extravagant spending among government officials in late 2012.

Hong Kong and Macau accounted for more than 10 percent of Kering’s first-half luxury retail sales, a spokeswoman said, declining to say how many stores it has in Hong Kong. Burberry, with 17 shops there, gets a similar proportion of revenue from those markets, excluding licenses.

Bygone Era

While wealthy Chinese are still spending in Asia, for example in Japan, they’re making fewer trips to Hong Kong amid a backlash by residents. Swiss watch exports to the island city slumped 20 percent in the first half.

Hong Kong’s “halcyon days are gone,” said Exane BNP analyst Luca Solca. He expects watch and jewelry makers in particular to close sites there, and rents to come down, helping “moderate adverse developments for luxury players.”

Kering has also started renegotiating rents in Macau and mainland China as part of a wider plan to contain costs, Duplaix said. Rental costs for luxury companies in Hong Kong could drop 20 percent in the next 18 months, according to John Guy, an analyst at MainFirst Bank AG.

“Hong Kong luxury consumption as a region has peaked,” he said.