LONDON — As China’s major commercial property developers release their 2020 full-year and interim results, a post-pandemic luxury retail heatmap begins to emerge.
In mainland China, with effective pandemic containment and government stimulus measures, consumer confidence has rebounded since the middle of 2020. International travel restrictions have also resulted in a spending boom in luxury goods in major mainland cities.
As shoppers queue outside stores — despite rounds of price hikes and China’s annual luxury online penetration increasing from about 13 percent to 23 percent in 2020 — leading luxury mall developers managed to bring in record-breaking sales figures gains of as high as 60 percent year-over-year.
But in Hong Kong, tightened social-distancing measures and cross-border travel restrictions continued to weigh on the retail sector. Core districts witnessed slashes in rents by as much as 80 percent for street-level shops as well as in premium shopping malls throughout the year.
Swire Pacific, the developer behind one of China’s best-known luxury shopping mall franchises, the Taikoo series, saw a general “strong recovery of footfall and of retail sales, particularly of watches, jewelry and other luxury items” from March 2020 on the mainland.
Despite a 3.9 percent contraction in national retail sales in 2020, the Hong Kong-based conglomerate’s overall retail sales in mainland China increased by 10 percent last year, and by 29 percent in the second half. Retail sales in Taikoo Hui in Guangzhou, Sino-Ocean Taikoo Li Chengdu, and HKRI Taikoo Hui in Shanghai increased by 36 percent, 6 percent, and 15 percent, respectively, in 2020. The increases in the second half were 65 percent, 26 percent, and 25 percent respectively.
Backstage at Chanel RTW Fall 2021
The art installation named “Please Be Seated,” which is designed by British designer Paul Cocksedge and was exhibited during London Design Festival, is demonstrated at Sino-Ocean Taikoo Li in Chengdu. Wang Xiao/AP
However, retail sales dropped 18 percent at Taikoo Li Sanlitun and 12 percent at Indigo in Beijing in the same period. The decreases in the second half were 1 percent and 17 percent, respectively.
The company’s Chinese mainland retail portfolio’s gross rental income for 2020 increased by 5 percent year over year to 2.49 billion Hong Kong dollars, or $320 million.
Meanwhile, in Hong Kong, where the city’s overall retail sales have seen a consecutive monthly decline since late 2019, Swire Pacific’s retail sales in 2020 decreased by 31 percent at The Mall, Pacific Place, by 18 percent at Cityplaza, and by 16 percent at Citygate Outlets.
In response to the difficult market conditions, the company said rental concessions were given for specific periods on a case-by-case basis to support tenants and to maintain high occupancy rates.
The Wharf Holdings, owner of fashion retailer Lane Crawford, IFS and the Times Square series complex, saw its biggest growth in second-tier city Changsha, the provincial capital of Hunan.
Despite the pandemic, revenue from Changsha IFS, a one-stop mega mall for shopping, dining, entertainment and lifestyle activities with more than 370 brands, increased by 25 percent while operating profit rose by 55 percent in 2020. Retail sales for the year increased by 42 percent, led by the luxury segment.
An aerial view of Changsha International Finance Square Tower T1, developed by Wharf Holdings. Ding Junhao/AP
Chengdu IFS’ revenue increased by 6 percent and operating profit by 12 percent in 2020. Full-year retail sales increased by 18 percent.
Similar to Swire, Wharf Holdings’ recovery in the second half reversed the decline in the first half of 2020. A series of sales-driven marketing initiatives and expanded loyal VIP customer base helped to drive record sales at its flagship malls. Its mainland China revenue in 2020 increased by 7 percent to 4.201 billion Hong Kong dollars, or $543 million, and operating profit by 11 percent to 2.57 billion Hong Kong dollars, or $331 million.
Stephen Ng, chairman and managing director of Wharf Holdings, said during the earnings call that the mainland China market was polarizing for most of the second half of 2020.
“The high-end side of the market is very strong…but general consumption, we see that it is still sloppy and definitely not as much as luxury goods,” he said, adding that this trend is also happening in the hospitality sector. The company’s premium hotel brand Niccolo did much better than its more affordable sister brand Marco Polo throughout 2020.
Hong Kong developer Sun Hung Kai Properties saw a 15 percent increase in gross rental income derived from the mainland, including contributions from joint ventures and associates, in the six months ended Dec. 31.
The company didn’t break down individual mall performance but said the group’s landmark properties, including Shanghai IFC Mall, IAPM and One ITC in Shanghai as well as Parc Central and IGC, the two joint-venture projects in Guangzhou, are at the forefront to capture a demand surge in luxury-end retail sales.
The company’s Hong Kong portfolio rental income registered a decrease of 8 percent to 9.12 billion Hong Kong dollars, or $1.18 billion. The company said the pandemic and a lack of tourists dealt a blow to its selected shopping malls and tourism- and leisure-related businesses. Negotiations both on new leases and renewals remained challenging, with near-term downward pressure on rents.
Installation “Self Portrait of a Dreamer” outside K11 Guangzhou. K11
New World Development’s retail concept K11 saw sales surge by 35 percent in the six months ended Dec. 31 compared to the same period last year across five K11 shopping malls owned or managed by the group in Shanghai, Wuhan, Guangzhou and Shenyang. Revenues of property investments in mainland China saw a 3.6 percent increase to 874.6 million Hong Kong dollars, or $112 million.
In particular, sales at Shanghai K11 increased by 37 percent in the period. The shopping mall in downtown Shanghai broke its monthly sales record last December while Shenyang K11 recorded a 50 percent increase year-over-year.
In Hong Kong, the group’s revenues of property investment increased by 7.1 percent to 1.44 billion Hong Kong dollars, or $185.6 million, during the period, with K11 Art Mall and K11 MUSEA recording a 56 percent rise in sales.
Hang Lung Group’s Plaza 66 in Shanghai, the leader in luxury retail in the city, saw a 60 percent rise in retail sales for the year ended Dec. 31, and the mall’s rental revenue climbed by 34 percent compared with 2019 levels.
Grand Gateway, another Hang Lung property in Shanghai that’s positioned more affordably, saw a lower but still significant retail sales increase of 10 percent year-over-year.
The company said of its lifestyle malls — namely Palace 66 in Shenyang, Parc 66 in Jinan, Riverside 66 in Tianjin and Olympia 66 in Dalian — that the recovery was “gradual,” caused by weaker spending in the non-luxury sector. Those retail properties saw sales declines in 2020.
Ronnie Chan, the chairman of Hang Lung Properties, commented to the press at the time that “in the second half of last year, if you grow by 60-some percent, you are the bottom of the pile as far as our luxury properties are concerned.”
The facade of the top luxury shopping mall Plaza 66 in Shanghai. Courtesy
In Hong Kong, where the firm is headquartered, the revenue trend was flipped. Mall locations that catered to local communities with mass offerings such as Kornhill and Amoy Plaza were more resilient, whereas the group’s properties in Causeway Bay, a tourist-favorite haunt, suffered.
Meanwhile, SKP, the luxury retail leader in Beijing, is said to have surpassed Harrods’ pre-pandemic performance for the first time in sales last year, racking up more than 17.7 billion renminbi, or 2 billion pounds at current exchange, up 17 percent year-over-year.
More than 15 million people visited the store in 2020, and many brands’ best-performing points of sale worldwide are in this mall, one of its real estate partners, Huamao Group, told the local press.
The retail franchise, owned by Beijing Hualian Group, is looking to speed its expansion in key lower-tier cities with strong buying power. Having opened a successful branch in Xi’an, last month SKP revealed plans to open a new flagship store in Hohhot, Inner Mongolia. SKP has also revealed plans to open new stores in Chengdu, Kunming and Hangzhou.
Other key players in the China luxury retail market include the state-owned China Resources Land’s retail franchise The Mixc and Alibaba’s Intime Retail. While their retail breakdown is not disclosed, it’s been widely reported in the local media that both have achieved impressive growth in the second half of 2020, and have plans to expand into regional economic strongholds.
The Burberry store in Shenzhen Bay MixC. Gang Li/WWD
The Mixc’s latest flagship addition, Shenzhen Bay MixC development, is where Burberry opened its 5,800-square-foot store in collaboration with WeChat’s owner, Tencent.
This year, a slew of top luxury brands, including Loewe, Goyard, Dior, Louis Vuitton, Hermès, Bulgari and Cartier, will open stores there, as Shenzhen Bay, which is at the heart of the Greater Bay Area and a short drive from Hong Kong, is where some of the wealthiest entrepreneurs in China live.
Adrian Cheng, chief executive officer of New World Development, founder of K11 Group and C Ventures, is also a firm believer in the Greater Bay Area concept. Last year, the company unveiled 11 Skies, a 3.8 million-square-foot retail, dining, entertainment and office location that cost 20 billion Hong Kong dollars, or $2.57 billion.
Betting on the return of tourists in the long run, the site is right next to Hong Kong International Airport. The company said the complex will be delivered in phases from 2022 to 2025.
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