44% rental reduction. Not a good sign.

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Luxury brands are able to command a super huge premium over non-luxury brands. This is why these luxury brands are able to house their stores in the best locations, renovate it extensively to make it look exclusive and yes, hire the best people so that the super wealthy could feel welcomed and is then willing to spend without much hesitance.

I remember when I was in Hong Kong, I saw people queuing outside those luxury branded stores! Okay, that was a couple of years ago and not recently but you get the idea. Luxury meant premium and it also meant that the rental which these brands are willing to pay are much higher than lesser known brands. Prada is one such luxury brand. It’s moving out of its store in Plaza 2000.

Article in southchinamorningpost.com here. Prada will be closing its 15,000 square foot store at Plaza 2000. It has been renting the unit for HK$9 million (RM4.81 million) per month and the seven-year lease expires in June 2020. When it moves out, the landlord of the store is offering to cut rental by 44 percent. Its landlord Early Light Group said, “The space will be ready next July. We are also accepting potential tenants who want smaller spaces.” Beyond just flexibility, the landloard is also willing to cut the rent at Plaza 2000 by 44 per cent to HK$5 million. (RM2.67 billion).

This closure follows Prada’s previous closure of a 3,000 sq ft boutique at Peninsula Hotel shopping centre. It is said that this closure is due to the sign that bricks-and-mortar retailers are now being pressured by e-commerce and online shopping sites such as Alibaba Groupo Holding’s Tmal..com and Farfetch, which both sell Prada products. It is also generally a dilemma for global fashion labels because many of their target customers are tech-savvy millennials and thus are buying online. However there is that worry that selling goods online will diminish a luxury label’s deluxe image. Please refer to the full article in southchinamorningpost.com here.

I personally think once everything goes online, that luxury feel will slowly disappear after many years that people no longer is able to feel, touch and be served by people in the store. If this is the way to go, well, luxury brands will have to find ways to continue showing to everyone why they deserve much higher premiums compared to the mass market brands. As for the rental for the retail lot, what is certain is that there’s a limit to how high it could go.

Mass market brands with cheaper price tags and lower margins will not be able to sell enough to cover the rental which the luxury brands could. Thus, we will continue to see adjustments. People need sufficient quality but at an affordable price. That applies to everything especially to properties. It should come fully renovated and ready to move in but the size can follow what the people could afford instead. Happy understanding.

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written on 23 Aug 2019

<Featured Image is courtesy of Stock Photos from Michael Gordon>

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