HONG KONG, China — Armed with empty suitcases and same-day return tickets, an army of mainland Chinese is descending on suburban outlet shopping malls and international fashion chains in Hong Kong, turning cheap into the new chic as luxury falls out of favour.
Wealthy Chinese used to stop over in Hong Kong for a few days to pick up a Louis Vuitton bag or a wristwatch for up to 40 percent less than in Beijing or Shanghai.
These well-heeled tourists have now been overtaken by bargain-hunters that stay for a few hours, spend more at shops like Inditex SA's Zara and malls such as Citygate Outlets, turning Hong Kong into a must-be location for retailers who are braving some of the world's most expensive commercial rents.
"There are more mainland consumers than locals," said Tsz Chung, a salesman at a Nike Inc store in Citygate, located in the satellite town of Tung Chung near the airport. "Typically, mainland consumers look for cheap goods."
Foreign retailers treat Hong Kong as a gateway to China, which is poised to become the world's biggest consumer market in three years, and how mainland tourists shop is big business. Sluggish sales growth in Europe and the United States also makes China, with its rapidly expanding middle class and rising incomes, especially attractive.
Chinese nationals were the largest single group of tourists to Hong Kong last year. Of the 35 million who visited, 20 million came and left the same day, an increase of more than a third on 2011, according to tourism bureau data.
Many short-term visitors come by shuttle bus or train from the southern Chinese province of Guangdong. They often head straight to Citygate, where more than 80 international brands including Levi's jeans, Coach Inc, Polo Ralph Lauren and Burberry are offered at steep discounts.
"It's cheaper here and there's a wide range of options," said Chen Yunlong, a 29-year-old tourist from the border town of Shenzhen as he strolled through the mall on a recent Saturday.
Visitors like Chen, who said he shops in Hong Kong up to three times a week, made Citygate the best performer among the big malls operated by realtor Swire Properties.
First-quarter sales rose 22 percent at the outlet mall, beating a one percent loss at the luxury-focused Pacific Place and a 3.5 percent increase at the mid-tier Cityplaza mall.
At the Nike outlet, Chung said all sales staff were now required to be fluent in Mandarin, the most prevalent Chinese dialect. Most Hong Kong residents speak Cantonese.
MASS-MARKET RETAILERS MUSCLE IN
Thrifty Chinese tourists are also proving a boon for New Town Plaza, a shopping mall located in the suburban Sha Tin district and owned by Sun Hung Kai Properties Ltd.
Retail rents at New Town, which is miles away from spots frequented by tourists, are among the city's highest. Last month, L Brands Inc lingerie chain Victoria's Secrets chose to locate its first Hong Kong stores at the mall and the prime downtown district of Central.
The increase in the number of bargain-seeking Chinese tourists was a factor that attracted 51 international brands to set up their first Asia Pacific stores in Hong Kong last year, about twice as many as in Singapore and Tokyo, according to research recently released by property consultancy CBRE.
Affordable retailers already established in the region are also forking out lofty rentals to attract these visitors.
Japan's Fast Retailing Co Ltd, owner of the Uniqlo clothing chain, last month opened a 37,500-square-foot store in the iconic Causeway Bay, which overtook New York's Fifth Avenue as the world's most expensive retail location.
"There are just too many brands looking for shops," said Susan MacLennan, director of retail at property consultants Savills in land-scarce, densely populated Hong Kong. "A lot of international brands are still very interested, but it's quite difficult to find space for them."
FRUGAL AND FASHIONABLE
The boom in Hong Kong's mass market retail sector comes as luxury goods sales suffer due to a slowdown in China's economic growth, a government crackdown on giving expensive gifts in return for favors and in-your-face displays of wealth.
LVMH, the world's biggest luxury goods group, said in April demand in China had been "flattish" for about 10 months. Luxury watch retailers Sincere Watch (Hong Kong) Ltd and Emperor Watch & Jewellery Ltd also reported a decline in sales.
In a bid to boost business, some upmarket brands are sending clients on all-inclusive shopping trips to Hong Kong.
But as the influence of these big-spenders on the global luxury market wanes, the spending power of their less wealthy countrymen is rising and changing Hong Kong's retail scene.
"For sure, we will see more big brands opening stores," said Joe Lin, senior director of retail services for CBRE Hong Kong.
($1 = 7.7590 Hong Kong dollars)
Copyright (2013) Thomson Reuters. Click for restrictions