China diary: Hong Kong’s high life – high rents, high competition, high-end luxury

Tuesday, May 15, 2012 | Posted by: Barry Knight
Categories: China | Tags: China, growth, UK, retail, wealth, luxury, opportunities, Hong Kong, commercial property, brands, China diary, retailers, retail space, : Hong Kong, China, China diary, UK, commercial property, growth, opportunities, wealth, retail space, retailers, luxury brands, retail

Ever wondered what it would be like having a business in Hong Kong? In my first post – our second from China – I highlight the differences between Hong Kong, China and the UK retail markets for the benefit of our UK clients looking at ways to take advantage of the growth opportunities in China…

Hong Kong has to be one of the most compact cities in the world – it is unbelievably crowded, which presents obvious problems and challenges! There is a phenomenal amount of money and wealth on show here.

The price of commercial property, for example, is incredible. One example is a new Forever 21 store out here that is paying £1 million a month in rent. Compare that with a similar-sized store on London’s Oxford Street, which would cost around £1 million a year to rent.

But there are small shopping malls everywhere, particularly under offices – it seems that wherever there’s a space, there’s a shop.

Making money as a retailer in Hong Kong is hard. And yet this former British colony, now a special administrative region of China, remains the place to be seen, and as such many just use it as a showcase.

It’s not all about luxury goods, though. The demand is there for quality brands and there are many UK household brands here, such as Marks & Spencer, Jack Wills, Mothercare and even Clarks.

It is the luxury brands that make money, however. There are thousands of them in Hong Kong. The reason they do so well is that China has various taxes on luxury goods whereas Hong Kong doesn’t, so they sell a lot to mainland tourists. One story I’ve heard over here illustrates this fact very well – someone came over from mainland China to the Rolex store in Hong Kong, which is not a small store, and bought all of the watches (bar three that were too cheap!).

To combat the space issue, retailers store merchandise within vertical warehousing, where lifts have to be used to access and move products. This is in direct contrast to the horizontal warehousing in the UK where everything sits on one floor.

The whole feel of retail in Hong Kong is different from the UK, as you’d expect. The shops are immaculate, clean and tidy. I walked into one store with a can of cola and was asked to leave. There is also a £100 fine for dropping litter, which I’m sure helps. And compared with London and other major UK cities, there’s hardly any advertising – perhaps because there is no money left over after paying the exorbitant rents.

Store formatting is quite different, too. For example Marks & Spencer in Times Square, Hong Kong, has its menswear department two floors below food and womenswear, with other retailers in between, so it’s totally segregated.

As for the staff, they often have big individual sales commissions, which means you do get hounded, particularly in the high-end stores – but it’s all very polite.

It’s clear to see that Hong Kong is an exciting and challenging environment to work and it’s been a very eye-opening experience.

Next stop, Shanghai…

Barry Knight
Head of Retail
For Grant Thornton UK LLP
T +44 (0)20 7865 2150
E .(JavaScript must be enabled to view this email address)

Image: (CC) Klaus Nahr

You might also find these posts useful:

* Read more from our China diary
* Businesses bullish on overseas M&A in 2012
* Why businesses fail in Hong Kong and China – by Barry Tong in HK