What’s powering luxury’s recovery in Hong Kong?

In the first quarter of 2024, Hong Kong’s luxury retail landscape isn’t just recovering; it's thriving. At the forefront of the city’s much-needed retail revival is Hermès, which is doubling down on its commitment to the city with an expansive renovation of its Causeway Bay store at Lee Gardens. Slated to reopen mid-year, the French brand’s revamped space promises an enriched assortment of Hermès collections, from leather goods to furniture. The move by Hermès reflects a bullish stance on the city that hasn’t been seen in years, as brands have shifted focus and investment to mainland China and other increasingly important markets like Singapore. Yet, a rediscovered confidence in Hong Kong’s luxury market is not unfounded. The city’s retail sector grew a remarkable 16.2 percent in 2023, and Hong Kong boasts the world's highest concentration of high-net-worth individuals relative to its population. As mainland China grapples with an economic slowdown and more cautious consumer spending, Hong Kong has re-emerged as a relative bright spot for luxury brands, with mainland tourists returning to the city in search of duty-free luxury shopping and enticed by a burgeoning cultural tourism sector. Cultural retail and airport deals Recent revenue figures bear this out. Last summer, Hong Kong’s K11 Musea, which takes an approach to luxury retail that integrates art, culture, and commerce, reported a 120 percent increase in footfall from pre-pandemic levels and a 260 percent boost in luxury sales, with nearly 30 percent of its tenants achieving record-breaking revenues. In December, K11 Musea reported an 80 percent increase in member sales during the Christmas holiday over the previous year, while Klub 11 Black Card members, representing the most affluent customers, spent 50 percent more than in 2022. Similarly, Airport Authority Hong Kong’s (AAHK) retail and advertising revenues for fiscal year 2022/2023 grew 1,112.9 percent YoY over its pandemic-hit low, reaching HK$752 million (US$96.1 million). Central to this revitalization over the past year was the renovation of the East Hall luxury shopping zone within Terminal 1, which saw the debut of three flagship duplex boutiques from Hermès, Louis Vuitton, and Chanel, along with the introduction of new retail offerings, including from TWG and Fortnum & Mason. In the wake of Hong Kong’s post-pandemic luxury retail lull, brands have swooped in to leverage better deals on retail spaces. Premium locations once thought unattainable for burgeoning brands or those cautious in their expansion strategies are now within reach, thanks to more favorable leasing conditions. In recent months, the likes of Sotheby's and The Macallan have seized these opportunities, securing prime locations at rates that reflect the current market's recalibration. This trend, as Oliver Tong of JLL suggests, is likely to catalyze a positive shift in rents, particularly in Hong Kong's core retail areas where space is at a premium. A once and future luxury magnet? In 2023, Hong Kong solidified its position as a premier destination for luxury brands, hosting an array of high-profile events that underscored the city's resurgence as a global luxury hub. Last November, Louis Vuitton led the charge by staging its first runway show in Hong Kong, overlooking the iconic Victoria Harbor, marking a significant moment for the brand and the city alike. This event celebrated Louis Vuitton's creative endeavors under the new direction of Pharrell Williams while symbolizing the rekindling of the luxury retail scene in Hong Kong. That momentum is carrying on this year. On March 23, Dior will unveil its men's pre-fall collection in Hong Kong, and paired with the upcoming relaunch of Hermès' expanded flagship store in Causeway Bay, Hong Kong’s status in the luxury and fashion landscape is set to go from strength to strength in 2024, even as luxury brands cautiously eye their prospects in mainland China. Tempered expectations Over the past year, Hong Kong's luxury market was buoyed by improved Sino-American relations and its regained status as a top-performing luxury market globally. According to a Euromonitor report, Hong Kong achieved the highest per capita spending on luxury goods worldwide in 2023, with competitive pricing driving growth in hard luxury goods like fine jewelry and luxury watches, which saw sales surges of up to 30.5 percent. Despite the optimistic outlook, the recovery of consumer sentiment and the economy remains gradual. Experts predict a full rebound to pre-pandemic levels by 2025, with current growth fueled by a combination of returning visitors and a rebound in private consumption, which surged 7.4 percent YoY in 2023. Despite the potential for a Hong Kong retail renaissance in the near term, the question is whether Hong Kong’s retail revival will last, or if it will simply be overshadowed by an eventual economic recovery in mainland China. Similarly, depending mostly, or solely, on mainland Chinese tourists would put Hong Kong luxury retailers on shaky ground. Millions of travelers now travel cheaply to Hainan island to do their high-end and duty-free shopping, and scores more now visit Hong Kong or Macau on lightning-fast day trips rather than multi-day experiential tours. This means it is arguably more important than ever for Hong Kong retailers and brands to offer something worth visiting. Local standouts Local brands and retail innovators are adapting to this new reality, emphasizing experiential retail and local brand development. Their success stories highlight a path forward for Hong Kong's luxury market, balancing international appeal with local culture and creativity. Kapok, a multi-brand fashion and lifestyle retailer founded in Hong Kong in 2006, has established itself as a cornerstone of innovation and thoughtful curation of local and global brands. During – and in the wake of – the Covid-19 pandemic, Kapok seized opportunities to expand into prime locations, further testing and proving its engaging retail concept, which emphasizes visual merchandising, a pleasant atmosphere, and a unique product mix. Other established local standouts include the five-year-old skate brand Victoria Hong Kong, which integrates unique local cultural elements into its designs, G.O.D. (Goods of Desire), a lifestyle brand founded in 1996, and menswear brand The Armoury, which has gained international acclaim and a significant online following since its founding in 2010. The rise of e-commerce sales and a greater supply of prime retail space have prompted a reevaluation of traditional retail models in Hong Kong, with upstart brands like KRSV and MiliMilu responding by creating diversified, omnichannel experiences that blend the tactile allure of physical retail with the convenience of online shopping. A crucial shift A shift towards a more diverse and culturally rich shopping environment, alongside strategic investments by luxury brands, is repositioning Hong Kong as a compelling proposition for luxury brands looking to capture the sophisticated local consumer base and the lucrative mainland Chinese tourist market. The resurgence of high-profile luxury events and the strategic reopening of stores by celebrated brands underscore a vibrant revival in retail and tourism, suggesting a promising future for Hong Kong's luxury sector. Despite challenges, including a shift in visitor focus from shopping to experience-based tourism and the impact of digitalization on consumer behavior, Hong Kong's adaptability is evident. Luxury brands are now embracing a more experiential retail approach, as seen in K11 Musea's success and Louis Vuitton's dynamic shows, which not only captivate local enthusiasts but also draw attention on social media platforms, highlighting the city's enduring appeal as a luxury destination. Moreover, the strategic reallocation of resources towards localized luxury, reflecting a nuanced understanding of mainland China's growing dominance in the global luxury market, does not diminish Hong Kong's stature. Instead, it reinforces its role as a crucial gateway for luxury brands into mainland China, fostering a symbiotic relationship that benefits both markets. Hong Kong's reemergence as a luxury shopping destination, driven specifically by cultural and experiential retail concepts, aligns with global trends toward personalized, immersive shopping experiences that resonate with a new generation of luxury consumers.

Sectors

Insights

Company

What’s powering luxury’s recovery in Hong Kong?