Fast Fashion Falling Victim To Hong Kong’s Rising Rents

Forever 21 Paying US$1.4 Million In Rent Per Month In Hong Kong

Abercrombie & Fitch will open its inaugural Hong Kong flagship on August 11

Hong Kong’s skyrocketing rents, which continue to wreak havoc on the city’s mom-and-pop businesses, have claimed perhaps their largest victim of the year, as Swedish mega-retailer H&M has closed its sprawling 2,790 square meter location in the Central district due to spiraling costs. The location, H&M’s first in China when it opened in 2007, will be taken over by Spanish fast-fashion rival Zara.

According to reports released last week, Zara will pay a whopping US$1.4 million per month rent for the space, double H&M’s previous rent and equal to what American retailer Forever 21 is reportedly spending in rent on its Hong Kong flagship.

As the Wall Street Journal notes:

Hong Kong is home to the world’s highest retail rents, with rents jumping 19% since 2011 to reach an annual US$3,864 per square foot, says commercial real estate firm CBRE. Rents in Central grew 6% in the first quarter of this year alone, reports commercial real-estate brokerage Collier International.

“It’s not a big drama,” says Ms. Chui of H&M’s decision to close its flagship shop. “Retail in Hong Kong is so fast and always expanding, so shops do close and then open up elsewhere. This is quite common in Hong Kong,” says Ms. Chui, adding that none of the company’s staff will be affected, and that employees will be reassigned to other H&M locations. Today, H&M has 12 shops in Hong Kong, and 80 in mainland China. “Sales in Hong Kong and China are doing very well,” says Ms. Chui.

Though H&M will certainly continue to do well in the China market, with its fast fashion brand as well as its more upmarket Collection of Style (COS), which is slated to expand into mainland China this fall, the rising rents indicate an important shift in that Hong Kong is no longer as easy a market as it had been for major retailers in years past. With the city’s overall retail market showing a slowdown, and mainland Chinese tourist-shoppers either spending less on average (or simply doing more of their high-end shopping in Europe, the US, Japan or South Korea as they venture further afield), more fast fashion brands — save, perhaps, for the very largest, will find it increasingly difficult to justify the high costs and lower profit margins they’re seeing in Hong Kong.

Hong Kong will remain an important market for H&M despite the store closing

This doesn’t mean, however, that profit-chasing (or greedy, depending on your viewpoint) Hong Kong developers and landlords won’t keep getting the rents they demand, at least in the short term. Prime real estate is too precious for some retailers to resist.

Next month, Abercrombie & Fitch is set to open the doors of its Hong Kong flagship in the city’s historic Pedder Building, formerly home to the Hong Kong-born, Richemont-controlled brand Shanghai Tang, which the American brand took over after agreeing to pay a whopping HK$7 million (US$900,000) per month in rent.

In many cases, brands are paying far more for their Hong Kong outposts than they do in other major retail locations like New York’s Times Square, as is the case for Forever 21. Though some of these brands can afford to take a hit, with Hong Kong rent increases showing no sign of stopping, it’s going to be tough times ahead for smaller fast fashion labels.

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