Burberry to Reduce Size of Hong Kong Flagship Store Amid Slump

  • Luxury maker seeks to mitigate slumping demand in island city
  • All company’s 17 stores in Hong Kong remain profitable

U.K. luxury-goods maker Burberry Group Plc is to scale back its biggest store in Hong Kong as it seeks to mitigate slumping demand in the island city.

Burberry has agreed with landlord Swire Properties Ltd. to give up the second story of its shop in Pacific Place, Chief Financial Officer Carol Fairweather said Thursday on a call with reporters. The shift “will enable us to drive increased sales per square foot and profitability in that store,” Fairweather said.

Luxury-goods makers are seeking to combat a slump in Asia as fewer wealthy Chinese buy expensive coats and bags in Hong Kong following protests there and a clampdown on extravagance back home. Swiss watchmaker TAG Heuer decided in August to shut a store in the city as high rental costs and declining customer numbers weigh on profitability, and Gucci owner Kering SA has said it may follow suit.

Fairweather said Burberry had renegotiated some rents in Hong Kong, while adding that all the company’s 17 stores there remain profitable. Sales in the island city have improved, but conditions remain “very challenging,” the CFO said as Burberry reported first-half profit that beat analysts estimates.

“We are committed to being in Hong Kong,” Fairweather said.

Burberry is cutting bonuses and consolidating products under one label as it grapples with slowing luxury demand, which Bain & Co. estimates will expand this year at the slowest pace since 2009. Burberry, which has indicated profit will probably decline for a second straight year, has been particularly affected by the situation in Hong Kong as it only has six stores in Japan where Chinese shoppers have shifted spending to take advantage of a weak yen.