Despite some of the highest rents in the world, British high street retailers are joining their luxury counterparts by showcasing their wares in Hong Kong.
Walk around any of Hong Kong’s major shopping areas, and high-end designers such as Balenciaga, Chanel, Dior and Burberry are almost as commonplace as Dorothy Perkins and New Look are on the UK high street.
The popularity of luxury brands in Asia is undeniable. But look closer, and UK high street names are also forging ahead.
British stalwart Marks & Spencer has traded in Hong Kong since 1988 and has 14 stores there, with another planned for launch early next year. Premium womenswear retailer Karen Millen has three stores in Hong Kong and plans to open a concession in local department store Sogo in March.
Like many British retailers, Karen Millen used Hong Kong, where it has traded since 2008, as a testing ground before launching in mainland China.
The retailer opened its first store in mainland China, in Beijing, earlier this month. “Opening in Hong Kong helped us to gauge the reaction from the Chinese market,” says joint managing director Gemma Metheringham.
“We were able to learn what works and what people are looking for. Once we knew the reaction was positive and that Chinese shoppers were becoming familiar with us, we were able to look at opening stores in mainland China.”
This is a sentiment shared by both premium retailer Ted Baker and women’s footwear brand Irregular Choice.
Ted Baker has traded in Hong Kong since 1996, when brand communications director Craig Smith says setting up in China was not an option: “The market [in China] was not as developed as it is now.”
According to Rick Keller, partner at retail consultancy Kurt Salmon, Hong Kong’s status as a bridge between Asia and the rest of the world is a key reason why retailers choose to open there.
“It can be hard to make money in Hong Kong because the rents are so high, so entering Hong Kong can often be more about retailers showcasing their brand to the rest of Asia.
“Hong Kong really is the gateway to China, and despite the high rents, it can be attractive to retailers because of its low income tax, no VAT and above-average levels of disposable income.”
Ted Baker’s Smith agrees: “We felt that as we were planning stores in Malaysia, Thailand, Indonesia, Taiwan and Singapore, it seemed logical to look at Hong Kong as a primary location.”
The effect of tourists from mainland China visiting Hong Kong cannot be underestimated, with Keller estimating that 70% of tourists – about 28 million people – are from the mainland.
“Chinese tourists are lured to Hong Kong because of tax-free shopping and also because of the wider selection of retailers available,” says Keller.
Irregular Choice is a relative newcomer to the Hong Kong market, having debuted in April this year, but already the brand has seen its popularity grow among Chinese shoppers.
“We get a lot of mainland Chinese tourists visiting the store here,” says marketing manager Joshua Sewell. “We have also been getting more hits on our website from China since we opened here as I think more people in China are becoming aware of the brand as a result of us being in Hong Kong.
“The rents here are ridiculously high,” he says. “But it was so important for us to be here, and we’ve already broken even.”
Although Sewell says Irregular Choice pays more for its Carnaby Street store than its branch in Hong Kong, the island is undeniably pricey, taking the second, third and fourth spots in a list of the world’s most expensive locations for retail rents.
According to the report, by property agent Cushman & Wakefield, only New York’s Fifth Avenue costs more.
The average retail rent in Hong Kong’s Causeway Bay is approximately US$1,943 (£1,209) per square foot per year, more than twice the US$930 (£579) per square foot for London’s Bond Street.
And rents are likely to stay high. “Space is limited in Hong Kong so retailers pay a premium for it,” explains Isabel Cavill, senior analyst at research firm Planet Retail.
UK retailers face other challenges in Hong Kong and the wider region, most notably the different average customer shape. Cavill says: “Chinese shoppers tend to be smaller than UK shoppers so retailers may need to tailor the sizing of clothes accordingly or ensure they stock a larger number of smaller sizes.”
M&S, for example, has tailored its shirts for the Hong Kong market with shorter sleeves. Karen Millen carries more size sixes in its Asian stores, while Irregular Choice introduced a size two shoe for its debut in Hong Kong.
Marketing and advertising can also be an area where UK retailers need to make some adaptations.
British heritage brands such as Aquascutum use Chinese models in their advertising campaigns, while M&S now uses Chinese models in posters in its stores.
“A brand might need to be positioned slightly differently in Hong Kong,” says Kurt Salmon’s Keller.
Conversely, playing the British card can help sales as Asian shoppers look for something they associate with the UK.
“People here like British brands,” explains publishing director for Marie Claire Hong Kong Jessica Ng. “Ted Baker is popular because people know it’s from the UK and it’s different.”
With the UK market suffering from stagnation and saturation, retailers are increasingly considering international expansion as a means of growth.
Karen Millen wants another 60 stores in Asia over the next five years, while Irregular Choice says its store is only just the beginning of its plans for the region. Despite its challenges, Hong Kong remains hot property.
Story in Numbers
28m - Number of visitors from mainland China to Hong Kong last year
£1,209 - Average price per sq ft per year to rent a store in Hong Kong’s Causeway Bay
3 - Number of Ted Baker stores in Hong Kong
14 - Number of M&S stores in Hong Kong
60 - Number of stores Karen Millen wants to open in Asia over the next five years