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Luk Fook to Expand Jewelry Stores as Landlords Slow Rent Demands

Luk Fook store
An employee arranges gold bangles in a Luk Fook store in the Tsim Sha Tsui district in Hong Kong. Photographer: Jerome Favre/Bloomberg

Aug. 26 (Bloomberg) -- Luk Fook Holdings International Ltd., the second-largest jeweler in Hong Kong by market value, plans to expand in the city’s prime shopping districts as landlords hold back on raising rents.

Landlords are forgoing rent increases or asking for smaller gains when leases come up for renewal, Luk Fook Chairman Wong Wai Sheung said in an interview on August 21. The company plans to expand in prime locations such as Causeway Bay and Tsim Sha Tsui, where it expects growth in jewelry sales, while closing stores elsewhere, Wong said.

“Usually when we renew leases for stores which we rented three years ago, we would see a big jump in rent,” said Wong. “But we’ve seen the rental increase slow at many stores. Some landlords didn’t even ask for more rent.”

Luxury retailers in Hong Kong have seen sales drop by at least 25 percent for each month in the second quarter as Chinese tourists spend less on watches and jewelry. Luk Fook is adjusting its mix of stores as slowing economic growth in China and a corruption crackdown in the mainland crimp spending.

A store under renovation in the Tsim Sha Tsui district, popular with Chinese tourists, will be bigger when it reopens before the Christmas holidays, Wong said. The company has opened new shops in Causeway Bay, Mong Kok and Tsuen Wan this year.

The number of shops Luk Fook operates in Hong Kong will be unchanged from a year ago as it shutters stores elsewhere, he said. The company had 44 shops in the city at the end of June, it said in a July statement.

Less Spending

Spending by tourists “dropped significantly” in the second quarter, Hong Kong Financial Secretary John Tsang said Aug. 10, leading the government to cut its economic growth forecast for the year.

Hong Kong is seeing more tourists from smaller Chinese cities with less purchasing power, Executive Director Nancy Wong Lan Sze said at the same interview.

The average price of products sold declined to HK$7,700 ($994) for the year ended March, from HK$8,700 a year ago, according to a company presentation in June.

Protests against Chinese tourists and over the election of Hong Kong’s next chief executive also impacted Luk Fook’s sales, Chairman Wong said.

“We hope these conflicts can be peacefully solved, so that our business won’t be ruined,” he said.

Prime street retail rents in Hong Kong were about $4,334 per square foot annually as of the end of last year, 31 percent higher than in New York and more than double that in Paris, according to a February report from CBRE Group Inc. Rents in secondary locations are expected to fall as much as 15 percent from a year ago as retailers stay cautious, the realtor said in a second-quarter review report.

To contact the reporter on this story: Jill Mao in Hong Kong at mmao14@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Nicholas Wadhams

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