Pop-ups, smaller shops are gaining appeal as Hong Kong retailers seek to lure shoppers and rein in costs

Distressed retailers in Hong Kong are likely to adopt pop-up spaces and short-term leases as a strategy to rein in costs in an industry battling to overcome the impact of anti-government protests and coronavirus outbreak, analysts said.

Developers and landlords are also likely to allot more space for pop-up stores to diversify their tenant mix and keep foot traffic in their properties even as businesses compete for a smaller pool of tourists and retail spending in the city.

"We foresee smaller spaces and short-term leases gaining popularity as it allows for greater flexibility and is more efficient from a retailer's perspective," said Lawrence Wan, senior director of advisory and transaction services in retail at CBRE.

Pop-up stores are temporary retail spaces and are often themed with an event or current market trend. They are typically short-term leases at a fraction of the standard rent, which allow vendors to capture a surge in traffic at festive times like Christmas or Lunar New Year.

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The strategy is gaining appeal as retailers face the latest threat from the viral outbreak after struggling through much of 2019 under the clouds of US-China trade war and anti-government protests. Daily visitor arrivals in Hong Kong slumped to 3,000 in February, compared with 100,000 in January and 200,000 in 2019, crippling the retail and hotel sectors.

Demand for smaller spaces has gained momentum as retailers sought to trim rentals from landlords to little avail, prompting an unprecedented strike in several malls last month. While mall owners have offered some concessions, some business operators argued they did not go far enough to enable them to beat the drop over the long haul.

Retail sales plunged 21.4 per cent in January from a year ago to HK$37.8 billion (US$4.8 billion), worse than the 19.4 per cent slide in December, the government said on Monday.

Scores of people dressed in black holding a protest at the Times Square in Causeway Bay in December 2019. Photo: May Tse

Pop-up stores allow retailers to offer experiential retail shopping by mixing technology and entertainment to create higher stickiness and encourage spending behaviour.

"We have seen this shift play out in the demand for smaller physical spaces, non-permanent and short-term leases which can be used for product launches and seasonal changes," said Claude Touikan, co-founder and executive director at architecture firm Lead8. "For developers, we are seeing traditional retail malls conceived as destinations where the experience draws consumers alongside marquee retail tenants."

Lead8 is involved in the design of Skycity, a 350,000 sq m (3.8 million sq ft) dining and retail hub adjoining the Hong Kong International Airport to be ready in 2027.

Pop-up stores to increase in Hong Kong as rents for retail space continue to rise

Pop-up stores also allow foreign retailers to test out their brands in the market before committing to a long-term lease.

"Pop-ups are also strategically being used as incubator spaces for foreign ventures or young brands to launch in quality or reputable spaces with very little long-term risks, especially in times of uncertainty," said Ferdinand Cheung, director at Hong Kong-based architecture firm LWK+PARTNERS.

Cheung's firm designed the Xichen Paradise Walk in Chengdu, the retail component of a mixed-use complex that includes an office and a serviced flat tower.

While pop-ups and small shops pay lower rates than the big shops, a good mix of tenants is likely to provide healthy traffic to mall owners.

"Despite the viral outbreak, a balanced retail space design is still important to mall owners as this is the root of maintaining a good tenant mix," said Daniel Wong Hon-shing, chief executive officer of Midland IC&I, which handles commercial property transactions.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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