Cracks in Hong Kong's retail industry are widening as the coronavirus fallout heaped pressure on more players while some of the city's biggest landlords continue to lower rents for their tenants.
Dickson Concepts, operator of Harvey Nichols department stores in Hong Kong, will cut staff salaries by up to 30 per cent, joining a list of peers in cutting costs. Hysan Development and MTR Corp disclosed they have offered rent concessions in their properties to help their clients ride out the crisis.
The viral outbreak has slammed tourist arrivals this year, especially among mainland Chinese who have become the industry's lifeblood in recent years. The biggest public health crisis since 2003 follows months of social unrest in 2019 that sank the economy into the first contraction since the global financial crisis in 2009.
"The group's retail business across all categories has deteriorated further significantly since the outbreak of the coronavirus in January 2020," extending the pain from the second half last year, Dickson Concepts said in a statement on Thursday. It may consider closing some of its stores temporarily as an additional short-term cost saving measure, it added.
Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities, expects visitor arrivals and retail sales to plunge by about 25 per cent year on year in 2020. Retail rents could fall by 20 per cent this year, according to CLSA and JP Morgan.
Railway operator MTR Corp said on Thursday it has cut rents by 50 per cent at its properties including in all train stations and 13 shopping centres for the months of February and March, according to chief executive Jacob Kam. The concession, for small and medium-sized tenants, could cost the company as much as HK$740 million (US$95 million).
"Hong Kong is also experiencing a drop in domestic consumption with citizens choosing to remain at home," said Cynthia Ng, director of retail services at Colliers International.
Hysan Development, the biggest landlord in Causeway Bay shopping district, has offered a "meaningful rent concession" in February and March to lessen the burden on its customers, adding to the relief handed out to them during the height of anti-government protests last year.
"Hysan now has to face one of the biggest challenges in decades because these factors have a huge impact on business, which may be even greater than when Sars broke out," chairperson Irene Lee, who declined to disclose the concession terms.
"The only thing we can do is to optimise our Lee Gardens zone, so the brands would want to stay," she added. "We also keep good relationships with tenants."
Preliminary data indicates the slide in retail sales in January amounted to about 20 per cent year on year, according to Roger Hao, the company's chief financial officer. The slump also matched the quantum seen in the second half of 2019, he added in a briefing.
The group has not yet considered laying staff off and employees have not been asked to take no pay leave, but have been requested to take paid annual leave, it added. It will also shorten operating hours of stores, as well as ask landlords for rental relief.
Hong Kong's retailing industry may have seen its best years.
Apart from the coronavirus, other factors such as lower taxes in the mainland, a weaker yuan, the social unrest and more competition for mainland tourists from other destinations mean "the sector has a tough time ahead of it and previous highs will not be reached," according to Savills.
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