Chinese brands move into Hong Kong amid struggles

Lao Feng Xiang?

Little known outside mainland China, 167-year-old jeweller Lao Feng Xiang., is part of a wave of Chinese retailers that are infiltrating upmarket Hong Kong's high-end shopping districts.

Gucci, LVMH and Coach bargain for lower rents or plan store closures amid a decline in mainland tourists, China's own luxury chains are filling the gaps, boosting their image and tapping international buyers.

Lao Feng Xiang, majority owned by the Shanghai government and with 3,000 stores throughout China, opened its first two locations in Hong Kong since May, and plans to have as many as

20 outlets in the city within a few years, said Marketing Manager Wang Ensheng.

"The fact that Lao Feng Xiang opened stores in Hong Kong boosted our reputation," Wang said in a telephone interview.

"Mainland consumers know that we are now a player in this international jewellery hub."

It's "a form of marketing," said Tom Gaffney, head of retail at property agent Jones Lang LaSalle. Chinese tourists view a mainland brand with a store in Hong Kong or overseas as having better quality. They carry the perception home and remain loyal customers even back in China, he said.

Lao Feng Xiang and other mainland chains are taking advantage of a drop in rents in Hong Kong's notoriously pricey malls and shopping districts. Rents for street-front stores in Hong Kong are expected to fall 15pc this year, according to Jones Lang.

The real estate broker is working with 12 Chinese companies to open stores in the city, up from six last year and three in 2013, said Gaffney.

Clients include Beijing Aimer Lingerie Company Ltd. and Guangzhou-based ladies bag-maker Powerland, he added.

"This year is the best time to enter Hong Kong, an opportunity that we have waited for years," said Lao Feng Xiang's Wang.

Rents fell after the city's appeal as a shopping paradise for mainland tourists was hurt by anti-China protests last year, a slowing economy and Beijing's austerity and anti-graft campaigns, which have made the Chinese wary of splurging on luxury goods.

Mainland travellers, who represent 10pc of global tourism and more than 25pc of luxury spending, are instead heading more to Europe and Japan, which have become popular due to their weaker currencies and relaxed visa procedures, according to Bloomberg Intelligence.

Fashion brand Louis Vuitton's sales fell in Hong Kong, Macau and China in the second quarter and the company has held talks with its Hong Kong landlords on rents revisions, LVMH chief financial officer Jean-Jacques Guiony said in July. LVMH- owned Swiss watchmaker TAG Heuer is shutting a store in the city as high rents and fewer customers weigh on profits.

The mainland invasion adds to competition for homegrown Chow Tai Fook Jewellery Group Ltd., which is closing stores. As an open market, Hong Kong welcomes newcomers, and that helps develop the industry, Chow Tai Fook spokeswoman Joanne Wong said in an e-mailed statement.

It's not just China's retailers jumping on the trend.

Shenzhen-based realtor Qfang has leased 45 outlets in Hong Kong since May and plans to raise the total to 200 in two years, said Hong Kong Managing Director Vincent Chan. Their rents in the city are 20pc cheaper on average compared with those of previous tenants, he said.

Invest Hong Kong, a government agency, has helped 68 Mainland companies enter the city in the first 8 months of this year, compared with 75 for all of 2014, according to its Associate Director-General Jimmy Chiang. There were 957 mainland Chinese companies in Hong Kong at the end of 2014.

China's luxury retailers still have some catching up to do to match the cachet and reach of big global brands. Lao Feng Xiang, ranked 16th by consultancy Deloitte in a tally of the world's 100 biggest listed companies by luxury sales, got less than 1pc of its revenue last year from outside China.

The top three, LVMH Moet Hennessy Louis Vuitton, Cie. Financiere Richemont, which owns of the Cartier brand, and France's Estee Lauder, derive sales more evenly from around the world.

In the window of Lao Feng Xiang's store in Hong Kong's Tsim Sha Tsui shopping district, a pair of dragon-and-phoenix golden bangles were on display. Inside, products made of gold and gems are for sale at prices from $100 to almost $1.2m for a jade necklace.

Lao Feng Xiang's shares have jumped more than 35pc so far this year, compared with a decline of about 1.5pc in the Shanghai Composite Index.

The company's net income rose 33pc for the quarter ended June as jewellery industry growth in mainland China remained strong, said Bloomberg Intelligence analyst Catherine Lim. (Bloomberg)