Flagship stores target the mainland

HONG KONG: Fashion retailers are increasing the size of their outlets in larger flagship stores in Hong Kong's premier shopping district, Causeway Bay, as they seek springboards into the mainland market, analysts say.

In two recent deals, fashion retailer I.T leased a 24,000 sq ft retail space at One Hysan Avenue; and Forever 21, a fashion retailer from the United States, leased a five-storey retail space in Capitol Centre at Jardine's Bazaar in Causeway Bay.

And there are more deals to come, forecasts property consultancy Colliers International, which noted in its "Spring 2010 Global Retail Highlights" report that: "The worst of the [global financial] downturn is over and high-end retailers will be back pressing for more high-profile stores."

Causeway Bay ranks third among the world's most expensive street-front retail outlets, with average rents of US$1,200 (RM3,910) per sq ft per year. It has attracted many international tenants, the report said, and more deals are expected over the next six to 12 months as retailers translate their plans into real estate commitments.

Helen Mak Hoi-lun, the director of retail services at Colliers, said large spaces were in demand by fashion retailers wanting to establish showcase stores to promote their image and prepare for expansion into the mainland market.

"All of the international brands are targeting the mainland's retail market. If they open a flagship store in Hong Kong and become popular, this helps them promote their brands on the mainland," Mak said.

"China is a big and complex market. Which city offers newcomers an opportunity to open a shop and get known by mainlanders fast?

"The answer must be Hong Kong, as it is welcomed by mainland visitors and information will spread faster," she said.

The change in retailers' strategies has seen landlords of retail properties bid farewell to long-standing - and lower-paying - tenants in a move to boost their rental incomes.

Jade Garden Chinese Restaurant, which has been at One Hysan Avenue in the heart of Causeway Bay for 34 years, quit the location this month along with Starbucks and fashion retailer Ports 1961.

Property agents said the vendor of the 24,000 sqft space, Hysan Development, began searching last year for a single, big tenant to replace the three after they left, and finally signed a lease with fashion retailer I.T at a monthly rent of about HK$1.5 million (RM627 million) compared with previous rental income of less than HK$1 million.

A spokesman for Hysan Development confirmed the space had now been leased to a fashion retailer but declined to provide details.

Forever 21 leased five floors in Capitol Centre at Jardine's Bazaar for HK$11 million a month recently. The 51,158 sqft retail space is currently leased to Giordano for HK$5.5 million a month. Giordano sublet some of the space to Watson's and some restaurants.

Leasing large retail spaces to a single tenant is proving to be more lucrative than packaging a number of tenants. "It is also easier for vendors to manage the shop if it is single tenancy only," Mak said.

Kevin Lam, an associate director of retail at property consultancy DTZ, said he was encouraging vendors to lease retail spaces as large flagship stores.

And with retailers keen to expand in the city, he estimated rents in Causeway Bay's prime locations had grown about 20% this year.

Retail leasing demand picked up further in the first quarter of the year, driven by sustained economic recovery, growing local consumer demand, rising retail sales and the continued growth in inbound tourism, according to Colliers' report.

The total value of retail sales grew 22%, quarter on quarter, during the three-month period between December 2009 and February 2010. -- South China Morning Post