With Hong Kong’s economic downturn and the slump in shoppers from the mainland, US fashion chain Abercrombie & Fitch is planning to close its four-storey flagship store in Central.
The 25,600 sqft (2378 sqm) Abercrombie & Fitch Hong Kong store on Pedder Street opened in 2011. The US fashion retailer is paying HK$7 million (US$900,000) in rent each month, double that of previous tenant Shanghai Tang. A&F has initiated an early exit, probably next year, before its lease expires in 2019.
The retailer says it exercised a lease kick-out option for the flagship store as part of its “ongoing strategic review”, expecting the move to “drive economic benefit over time”. Early closure of the store will trigger a “lease termination charge” of about US$16 million in the next quarter, the company says.
It also means the company will be left without a branded store in Hong Kong, but it intends to add five stores on the mainland by the end of January.
Jack Chuang, partner, Greater China, OC&C Strategy Consultants, said the closure announcement feels like da ja vu following Forever 21’s recent news it would close its Causeway Bay flagship store next year.
“The high level of rent incurred for such large flagship stores, like Abercrombie & Fitch’s store on Pedder Street, is only justified if there is strong foot traffic and sales to build brand equity in a sustainable manner. This strategy made sense when we saw a heavy influx of Chinese tourists into Hong Kong between 2010-2011.”
But Chuang said that era was over and flagship stores profits are adversely impacted as Chinese tourist numbers decline.
“Over time, when brands have established themselves in the market, flagship stores become too expensive for the brand without viable economics and limited capital. Therefore, brands will need to trade-off other marketing investments such as digital marketing vs large flagship stores. Brands like Abercrombie & Fitch and Forever 21, who target younger and more digitally advanced consumers need to realign their strategies based on the ever-changing consumer landscape for the specific market.”
Overall, Hong Kong’s retail sales slumped 9.6 per cent in the first nine months of this year, but the commerce minister says tourism shows signs of recovery as the decline slows.
Meanwhile, US fast-fashion brand Forever 21 is to close its flagship store in Causeway Bay late next year, and last year US leatherwear brand Coach closed its four-storey main store in Central.