Victoria's Secret, the American retailer known around the globe for its seductive lingerie and advertisements, has closed its flagship store in Causeway Bay, becoming the latest luxury brand to shut its doors amid a plunge in tourism in Hong Kong due to the coronavirus pandemic and last year's social unrest.
The retailer posted a simple paper notice on its door on Thursday that read, "We regret to inform you that we have closed the Victoria's Secret Flagship Store at Causeway Bay in Hong Kong. You will be available to shop online on our international website."
Its announcement that it is shutting its sole store left in Hong Kong is the latest grim sign for the city's landlords.
It follows the decision earlier this month by Greek jeweller Folli Follie to shut all of its shops, including in Hong Kong. Meanwhile, Prada closed its flagship store on Russell Street, one of the most exclusive shopping strips in the world that has seen other high-end tenants close up shop, including luxury watch seller Rado.
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"International brands have decided to close or scale down their operations and that indicates they are less optimistic about the retail market outlook. They probably believe the market is unlikely to return to the pre-Covid-19 level after the pandemic is put under control," said Martin Wong, associate director, research & consultancy of Greater China at Knight Frank.
Landlords have been slashing rents in the city to try to help retailers and other tenants survive the economic recession and collapse in business.
But countless shops have closed, meaning landlords have had to settle for paltry by comparison rents. A mobile phone store, for example, leased the space on Russell Street for a mere 6 per cent of what Swiss watch maker Tissot had been paying for it.
But the bad news just keeps coming.
Already, the rents for street level shops have tumbled 60 per cent since the peak at 2014. Knight Frank's Wong expects such rents will plunge a further 30 per cent to 50 per cent this year.
"Big brands that target the mainland market will directly open their stores in China," he said.
Like Prada, international brands Louis Vuitton and Tiffany & Co. chose not to renew their leases in Causeway Bay " the most expensive address in the world " and Tsim Sha Tsui last November, as protests severely damaged foot traffic.
Victoria's Secret " which is struggling globally for a host of reasons including the huge popularity of athleisure wear " is part of this trend.
It has leased five levels totalling 50,000 square foot at Capitol Centre, the busiest shopping location in Causeway Bay, signing a 10-year lease in 2017 for an estimated HK$7 million (US$900,000) a month. That was about 50 per cent lower than what the previous tenant " US fashion brand Forever 21 " paid for the space. It was not immediately clear whether it will face an early lease termination penalty and what it might be.
"Although it is a 10-year lease, the tenant will have a clause option to renew after several years of operation," said Tony Lo, a director at the real estate agency Midland IC & I, adding most leases include an option for the tenants to renew after two to three years. "It is hard to predict if the early termination in this case will involve a penalty or not."
He added that only time will tell if such luxury retailers will return to Hong Kong.
"It is a trend for big brands to close their stores with high rents to stop bleeding at a time when sales deteriorate rapidly. They perhaps will come back when the market recovers later," he said.
Hong Kong retail sales have plummeted as visits by all-important mainland tourists evaporated.
April saw a 15th consecutive month of contraction, with a 36.1 per cent decline year on year, according to the Census and Statistics Department. The city's retail management association has warned of a "very challenging time" in June, despite some pickup seen at shopping centres by local shoppers amid a blitz of cash vouchers, free iPads and other freebies by mall operators to entice people back.
Hong Kong tourist arrivals dropped 99.9 per cent to just 4,125 in April, from 5.58 million a year ago, according data from the Hong Kong Tourism Board.
In April, just 2,947 mainlanders arrived in Hong Kong, which was a 99.9 per cent plunge from 4.27 million a year ago. From January to April, tourist arrivals fell 85.3 per cent to 3.49 million.
"Hong Kong retail landscape has been changed, as we see more food and beverage stores and discounted chains take up the empty spaces evacuated by high-end retailers recently," said Knight Frank's Wong.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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