Carmen Lam (20), Monica Lam (21)
Economic News Analysis
South China Morning Post
Friday May 14 2010
Rise in mainland shoppers spurs developer to renovate Prince's Building
retail podium
Yvonne Liu
The increasing number of mainland shoppers has encouraged Hongkong Land to
invest HK$151 million to renovate the retail podium of Prince's Building in Central.
'About 25 per cent of the shoppers in our shopping malls came from the mainland,'
said Raymond Chow Ming-joe, an executive director at Hongkong Land. 'We found
that increasing [numbers of] mainland travellers with higher income choose to go
shopping in Central in recent months, as the malls have a greater selection of
brands.
'The retail traffic at our shopping malls may be less than the other malls, but the
spending per head is higher than the others.'
He declined to disclose figures.
Renovation work had started and was scheduled to be completed early next year,
Chow said.
Average rents for the company's retail space in Central rose by 3 per cent last year,
its annual report says. Chow expects retail rents to have stronger growth this year
as the demand for retail space is strong. The firm's retail portfolio is fully let.
International brands also appear optimistic about Hong Kong's retail outlook and
have expanded in the city.
Alfred Dunhill previously leased a 3,800 square foot retail shop in Prince's Building.
In March the firm expanded to an 8,000 sq ft shop on three floors in the building, its
largest store in Asia.
Cartier has also taken a 10,000 sq ft retail space on three floors in the building. It
will be the largest Cartier shop in Hong Kong after renovation is completed by the
end of next year. Previously, the retailer occupied a 3,200 sq ft shop.
Jewellery shop Van Cleef & Arpels and footwear brand Berluti have also expanded
their shops to 3,200 sq ft and 2,300 sq ft respectively, up from 1,700 sq ft and 700
sq ft.
photo 1
Description
Recently, there are more mainland travellers with higher income like to go shopping
in the brand-name shops in Central. Therefore, this encourages the Hong Kong Land
to invest money to renovate and expand the retail podium of the Prince’s Building in
Central. The average rent for the company’s retail space rises as the demand for retail
space is strong. Some international brands even try to expand their retail shop in
Prince’s building to cater the larger demand from travellers as they also appear
optimistic about Hong Kong’s retail outlook and have expanded in the city.
Graphs
(1)
(2)
Explanation
Changes in demand and supply
From graph 1, we can see that the demand for brand-name goods in the Prince’s
building increases due to the increasing number of mainland shoppers with high
income, choose to go shopping in Central in recent months. Especially for the Prince’s
building as the mall has a greater selection of brands and it is convenient to access as
shown in the photo (bus station). Therefore, the quantity transacted will increase and
the price will increase too.
From graph 2, there is increase of demand and supply for retail places in the
Prince’s Building. The retail rents will have stringer growth this year, expected by the
executive director at Hong Kong Land as the demand for retail space is strong. The
firm’s retail portfolio is fully leased out. The supply for retail spaces also increases
because of the renovation work of prince’s Building. There will be total six floors of
shopping mall in the new building. Since the percentage increase in demand is larger
that the percentage increase in supply, the price will increase and the quantity
transacted will increase.
Internal expansion (horizontal expansion):
As there are more mainlanders come to Central for shopping in brand-name
shops, the brand-name shops in Prince Building have greater incentive to expand the
business network. For example, one of the international brand-name shop, Alfred
Dunhill expand itself in Prince Building from previously a 3,800 square foot shop to a
8,000 square foot shop on three floors, becoming the largest retail store in Asia. The
above example shows that Dunhill has practiced horizontal expansion in Prince
Building. The shop can combine with the previous Dunhill retail shop with the same
stage of production selling same kinds of products and expand the existing shop to a
larger store in the building. The motive for such expansion of the brand-name shops is
to increase the market share for its products in Hong Kong and enlarge their market
power so they can control the market price. Also, the expansion can help to diversify
markets. Even the demand for one market falls, other markets in the world can
compensate the losses so the firm’s income can be stable. This can enjoy the
spreading risk in the internal economies of scale. When the brand-name shops
diversify their market, risk can be reduced and the average cost falls.