Hong Kong, the luxury gap
Is Hong Kong still HYV-positive (Hermès Yohji Versace) wonders Sat Bal as Red Carpet roamed Asia Pacific’s luxury landscape. We were aided on our quest by Mandarin Oriental hotel, The Royal Hong Kong Yacht Club, global production company Imagination and Sir David Tang’s China Club among others. Click the images at the end of this (5-part) piece to catch their take on how nouveau-riche and ancient superstition drive this extraordinary city. (28 Nov '12)
If the almost full Upper Class cabin of our Virgin Airbus is anything to go by then there’s still gold in those Hong Kong hills where apartments on the Peak weigh in at around HK$50m ($6.45m).
The Hong Kong skyline glitters with the big ‘starchitects' ; Sir Norman Foster and his (feng shui-compliant) HSBC building near the Bank of China, designed by I.M.Pei. And now Frank Gehry has joined the star collective with the summer unveiling of Opus Hong Kong. This 12-storey luxurious residence from Swire Properties boosts the Peak’s exclusivity further with two duplexes and 10 individually designed apartments. Monthly rent? Around £43,000 or HK$ 540,000.
The Chinese wall of money coming into Hong Kong has long boosted its coffers. But the Chinese influence that comes with it hasn’t been so well received. Time and again the theme of cultural encroachment reared its head at dinners and parties that we attended.
Indeed, one of our more memorable traffic jams was caused by the furore over plans to teach Chinese history in Hong Kong’s schools. We watched as crowds surged in to protest - and win their point when the 2015 deadline for the start of the Chinese plan was revoked. Love it or hate it, Mandarin is increasingly spoken amid Hong Kong Cantonese and the place continues to be in rude financial health. So how do they spend it?
Media schadenfreude (or desperate reporting) loves to predict the death knell for growth in the luxury goods and services sector. Yes, it’s slowing down - but it’s still growth – and it’s still big. The market’s growth is calculated at 10% for this year (taking total revenues to €212 billion) ;a slowdown of 1% from 2011 according to Bain & Company, adviser to the global luxury goods sector. This double-digit growth has continued for the third year in succession since the global recession started.
The numbers come from Bain’s 11th edition Annual Luxury Goods Worldwide Market Study released in October. Bain’s analysis of affluent spend includes luxury cars, wining and dining, furnishings and yachts.
Focusing on Asia-Pacific sales, growth is projected to grow by 18 per cent this year, largely driven by China. Compare this to Europe where 2012 growth is set at five per cent this year, approximately half that of 2011.
Chinese consumers now account for half of the luxury purchases in all of Asia, and nearly one third of those in Europe. The global picture shows that one in four purchases of personal luxury goods comes from Chinese consumers. Is it any wonder then that stone’s-throw-away Hong Kong has been a big beneficiary of this affluent spend? Okay, Hong Kong’s Golden Week – a shopping holiday which runs in the first week of October – reported a slide in luxury sales this year. And yes, Burberry issued a profits warning last month.
But is this because the wishlist of high-spend shopping has changed? Red Carpet’s on-the-ground experience at Hong Kong’s socials indicated a move away from ‘the logo’ to a different apex of luxury goods. “The super wealthy prefer Bottega Veneta and Hermès and they tend to avoid Burberry and Louis Vuitton, which are not considered as exclusive,” said Shaun Rein, managing director of China Market Research.
Business analyst at CMR Kevin Der Arslanian agrees but cautions, “Luxury brands are facing a challenge right now as the majority of buyers are being more careful in their purchases, and are looking for value beyond a well-known logo. However, there is still tremendous growth potential in the higher-end segment. English brands such as Stella McCartney, Alexander McQueen or Purdey can take advantage of this situation by educating consumers on their brand, their heritage and superior quality.”
Claudia D’Arpizio, a Bain partner in Milan and lead author of the Annual Luxury Goods believes that the evolution of marketing will determine the luxury brand leaders of the future. “Fundamentals for growth remain strong, but it’s going to be a bumpy ride,” says D’Arpizio. “The strategies that brands relied on to win in the past simply aren’t going to connect with the segments that will matter most in the second half of the decade.”
The dense, hot space of Hong Kong squeezes in a population of around seven million people. It’s cramped, busy - and exciting, on social and business levels. The city’s landlords have been the big beneficiaries of the lucrative dash for limited space and this is borne out by global property expert Savills whose World Cities Review (published in spring) cites Hong Kong as the most expensive city in which to buy property, reflecting capital cost and stamp duty.
On the rentals side Hong Kong comes third (after Paris and London) for relative cost. Raymond Lee of Savills Hong Kong reports that '..the market continues to defy gravity.'
Commercial business is also booming. “Hotel occupancy rates are at or above 90% while retail rents are among the most expensive in the world,” Simon Smith senior director of research & consultancy in Savills Hong Kong told Red Carpet. “A problem in many sectors of the market is simply a lack of availability as businesses chase the same prime space.”
Hong Kong’s art world has seen dramatic prosperity and is no longer the preserve of Christie’s and Sotheby’s as Chinese auction houses like China Guardian move in for their slice of this lucrative pie. Its auction house is now the third largest in the world with sales bubbling just under $2 billion last year. The city’s low tax regime (zero-tariffs on art imports), stable regulatory model and the patronage of international buyers has fuelled the market’s stratospheric success. Chinese mainland buyers naturally helped boost this drive - not least because of the stinging by Chinese customs authorities this spring which launched major probes into alleged tax evasion on art imports.
International galleries have followed in the wake of thei success and undeterred by the rocketing rents. Jay Jopling’s White Cube opened here in spring. Gagosian Gallery is a stalwart and its central Hong Kong Pedder Building outpost joins a network ranging from Beverly Hills to London’s Davies Street. London’s Ben Brown has also followed with a Pedder Building space.
Away from the platinum set, the boho vibrancy of Sheung Wan district offers artists and designers a heritage-seeped village far from the mainstream. Its Hollywood Road is host to old Hong Kong reflecting a bygone era despite its name which, incidentally, long pre-dates LA Hollywood.
Sheung Wan is where the independent art set and design creatives have flourished lured, initially, by low rents and prospects. But the ever increasing premium on space in Hong Kong has pushed up rents here too, by some 20% in the past couple of years. Big developer ambition and threatened gentrification pose questions over this community’s ability to preserve its bespoke coterie.
For more on the Hong Kong experience click images below:
Imagination Mandarin Oriental
The Pleasure Guide Royal Hong Kong Yacht Club