Lao Feng Xiang?
Little known outside mainland China, 167-year-old jeweler Lao Feng Xiang Co., is part of a wave of Chinese retailers that are inverting Hong Kong’s high-end shopping model. As Kering SA’s Gucci, LVMH and Coach Inc. 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 jewelry hub."
It’s "a form of marketing," said Tom Gaffney, head of retail at property agent Jones Lang LaSalle Inc. 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 15 percent 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 AG, he said.
"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 travelers, who represent 10 percent of global tourism and more than 25 percent 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 20 percent 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 1 percent of its revenue last year from outside China. The top three, LVMH Moet Hennessy Louis Vuitton SE, Cie. Financiere Richemont SA, owner of the Cartier brand, and Estee Lauder Cos., 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 $1.2 million for a jade necklace.
Lao Feng Xiang’s shares have jumped more than 35 percent so far this year, compared with a decline of about 1.5 percent in the Shanghai Composite Index. The company’s net income rose 33 percent for the quarter ended June as jewelry industry growth in mainland China remained strong, said Bloomberg Intelligence analyst Catherine Lim.
"Lao Feng Xiang may be looking to raise awareness of its brand by opening stores in Hong Kong," Lim said. "The focus is less likely to be on lifting profits at this stage."
By Catherine Chen; editors: Tan Hwee Ann, Stephanie Wong, Adam Majendie and Daryl Loo.