Pharrell is heading to Hong Kong. Will others follow?

This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. After staging a blockbuster debut for Louis Vuitton in Paris in June, Pharrell Williams is heading to Hong Kong on 30 November to showcase his pre-fall 2024 collection for the house. The choice of location sends a clear message: Hong Kong is back on the map for international luxury brands. The show will take place on the Avenue of Stars, known for its celebrity handprints and bordering the Tsim Sha Tsui waterfront, framed by Victoria Harbour. In partnership with K11 Musea, a complex by the billionaire Cheng family’s New World Development, Louis Vuitton will transform K11 Victoria Dockside for the occasion, the house announced in a statement on Monday. It will be live streamed locally on digital billboards and globally via Louis Vuitton’s social channels. China’s decision to fully reopen its border with Hong Kong on 6 February after nearly three years of closure was met with an influx of people from the mainland. “Hong Kong, Macau and Hainan have been strongly revitalised since this year,” said Cartier president and CEO Cyrille Vigneron during parent company Richemont’s Q2 update on 10 November. “In this area, we’ve seen triple-digit growth compared to low levels [last year]. It has not yet reached pre-Covid levels, but it’s growing pretty fast.” Retail sales in Hong Kong were up 13 per cent year-on-year in September, according to the most recent data available from the city’s Census and Statistics Department. Can Hong Kong regain its cachet after a three-year hiatus? It’s been a tense few years for the region. There were mass protests in 2019 and 2020 over Beijing’s ever-growing influence on the city. The government subsequently toughened its position on protests, then followed strict Covid-related restrictions and a bruising recession. Hong Kong has not been spared the exodus of expats seen elsewhere in China during the pandemic, as well as store closures and increased competition from other destinations. However, experts say the city is well positioned to benefit from the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), an agreement signed in 2017 aiming to reinforce connection and cooperation between Southern Chinese cities. Hong Kong is the most international city in the GBA and boasts a business-friendly environment, which has welcomed new transport infrastructure prioritised under the GBA. The city is working on restoring its image, whether it’s with promotional campaigns (think 500,000 free air tickets) or cultural events. Luxury sales in Asia Pacific, excluding mainland China, are expected to grow 20 per cent next year, driven by Hong Kong, Macau, South Korea and Japan, according to HSBC estimates. “The reason Hong Kong will still do very well next year is linked to the fact that you’re still missing more than a third of Chinese visitors who used to go in 2019. So you [can] still recoup some of those lost tourism flows,” says Erwan Rambourg, managing director, global head of consumer and retail equity research at HSBC. It also has a higher quality of luxury retail spaces than pre-Covid, following a flurry of refurbishments. Among them, Hermès’s revamped Harbour City store — 2020 saw it nearly double in size. Dior also unveiled an enlarged flagship on Canton Road in August 2022. Both are in Tsim Sha Tsui, which ranked as the second most expensive retail district globally in terms of rental values in 2022. Property developer New World Development has been opening high-end complexes like 11 Skies at Hong Kong International Airport, additionally benefiting from the GBA initiative as it is located near the Hong Kong-Zhuhai-Macau Bridge, which opened in late 2018. Elsewhere, there has been some retail consolidation, says Rambourg. For example, brands including Cartier, Van Cleef & Arpels and Piaget have closed their stores at the 1881 Heritage shopping centre and relocated them. “You used to have eight or nine luxury shopping destinations that were the hot places. Now, if you're a mainlander, it’s essentially [Hong Kong’s largest shopping mall] Harbour City and, if you’re a local, Landmark or the IFC. Those have really gained market share,” Rambourg says. “Hong Kong is back with some changes, but these are changes that are pulling up the market, with a retail consolidation but also a lot of renovation and investments,” says Benjamin Vuchot, chairman and CEO of LVMH-owned luxury retailer DFS Group, which counts four stores in Hong Kong and eight in Macau. It revamped a T Galleria by DFS beauty store on Canton Road during the pandemic, featuring a concept called The Beauty Collective, designed to introduce local customers to new brands. “It’s the most comprehensive prestige beauty store in Hong Kong and one of the most beautiful in the world,” Vuchot says. Increased competition A big challenge facing Hong Kong is the rise in competition from Hainan and mainland cities like Shenzhen, as well as its existing rivals for the crown of China’s fashion capital, Shanghai and Beijing, and to a lesser extent Hangzhou, Chengdu and Guangzhou. Shenzhen, where Chanel recently staged their cruise collection, is another destination that’s growing in popularity. The MixC Shenzhen Bay shopping mall is home to a number of luxury brands, including Chanel since 2021. A tech hub, Shenzhen had 113 billionaires in 2022, surpassing New York, according to an annual ranking by Chinese private company Hurun. Bruno Pavlovsky, president of fashion at Chanel and of Chanel SAS, told Vogue Business ahead of the show. “We were in LA before, which was about tech, about cinema and about the overall entertainment industry. We can find the same touchpoints in Shenzhen — a city full of energy and hope.” However, Shenzhen still has a long way to go to rival Hong Kong in the fashion stakes, experts believe. Thanks to its free trade port status, Hainan Island became a hub for local luxury spending during the pandemic. Now, it is establishing its own international customs system, which could be a game-changer for luxury players currently put off by the presence of daigou — traders who take advantage of cross-border price differences to resell luxury goods on the grey market. Hong Kong and Macau are due to ‘boom’ in the first six months of 2024 as Chinese tourists continue to flock to the city, but this growth is expected to decelerate in the second half, with Hainan securing a bigger share of luxury spend, the latest report by management consultancy Bain & Company and Italian luxury association Altagamma predicts. The status of Hainan, which is currently operated under the duty-free licence model, is due to change by the end of 2025. LVMH CFO Jean-Jacques Guiony told analysts in October: “The way the brands could operate in this environment will be entirely different from what it is [now]. Given the number of people visiting Hainan on a yearly basis, it’s worth considering it as an important market, and therefore, all our brands are contemplating opening stores in a selected way in Hainan. No decisions have been made yet with one exception, DFS.” DFS is slated to open a 128,000-square-metre site in Hainan’s Yalong Bay in 2026, featuring over 1,000 luxury brands, including LVMH-owned houses. “In that way, DFS [will] basically reproduce what they [did] in Macau some 15 or 17 years ago, which is to enable luxury brands to enter the market in a controlled and safe way,” Guiony said. Rambourg points out that Hainan is very different to Hong Kong, which is more for business travellers. “Hainan is a tropical island (often described as the Chinese Hawaii), so a stark contrast to Hong Kong, which is a very vertical city,” he notes. Hong Kong can count on its character, elevated shopping experience and impressive food scene — it is home to more Michelin-starred restaurants than New York (78 and 71, respectively, in 2023) — to fight off the competition, experts say. “Accompanied with the lift of travel restrictions, the culinary scene in Hong Kong remains vibrant and passionate, while the hospitality industry is also picking up its pace,” says Gwendal Poullennec, international director of the Michelin Guide. French chef Anne-Sophie Pic, who retains three Michelin stars, opened a new restaurant in partnership with crystal maker Baccarat in the Landmark shopping centre earlier this month. There’s also art: new museum M+ opened in 2021, while Cartier staged an exhibition at the Hong Kong Palace Museum earlier this year. Art Basel returned in full this year in March, and auctioneer Christie’s will open its new HQ in a rocket-shaped building designed by Zaha Hadid architects next year. Hong Kong’s sophistication makes it appealing despite the growing competition. “In terms of travel intentions, it’s still one of the top three destinations for the Chinese today. There’s a kind of myth, a fascination that remains for Hong Kong,” says DFS’s Vuchot. Key takeaway: While seeing a strong rebound, Hong Kong has not fully recovered after a three-year hiatus marked by mass protests and Covid-related restrictions. A number of brands consolidated their network and refurbished stores in the city during that period. The competition to attract luxury shoppers is stiff, notably from Hainan, whose status is due to change in 2025, and Shenzhen, which counts a number of new billionaires and large-scale complexes. Still, Hong Kong’s status as a business and cultural hub holds strong appeal for luxury brands. On 30 November, the Louis Vuitton show on the Avenue of Stars is bound to make Hong Kong shine. How is the Hong Kong market faring? Hong Kong in 2023 is doing well, obviously better than in 2022, since the borders with China only [partially] opened in January 2023. Hong Kong is emerging from Covid. Its connectivity with China has increased significantly. There are many travel options between Hong Kong and Shenzhen, for example, travellers have the option to take a 45-minute metro ride or even a 14 to 18-minute high-speed rail ride, which makes Hong Kong a more palatable and accessible shopping destination. By comparison, it’s not always as easy to go from China to the rest of the world in terms of obtaining visas, renewing passports and the cost of medium- and long-haul flights from China, which is still quite prohibitive. What has changed compared to pre-Covid? Many players have taken advantage of the contraction during Covid to rethink their network, reinvest and be better prepared for the return of Chinese customers to Hong Kong. The second point, which you’ve certainly seen in other markets around the world, is that brands have refocused on their local customers. Once these relationships have been established between sales staff and local customers, this contact remains. What are the challenges for Hong Kong? I think there are actually two challenges for Hong Kong that are more established than they were before Covid: there's Shenzhen, where there has been the emergence of several quality shopping malls and an increase in the population. People who were in Shenzhen during the pandemic got used to shopping locally. And there’s Hainan. In fact, we've announced DFS, our biggest project ever in our 60 years of existence. We're going to open 128,000 square metres in Yalong bay in Sanya in the second half of 2026. The project will be fantastic with luxury retail, services, and restaurants. So Shenzhen and Hainan are new challengers for Hong Kong but I remain convinced that the cake continues to grow. What’s your outlook? First of all, we want to maintain our focus on retail-tainment. For us, it is essential to be relevant, and it has been our main growth driver over the years because the number of destinations has also increased a lot for tourists. If all the lights are green, this could be a year of significant growth. Correction: This article was updated to reflect Benjamin Vuchot's as chairman and CEO. An earlier version of this story stated that he was president and CEO. (21/11/2023) To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com.

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