Global luxury brands slow store expansion on mainland China

The glitzy romance between the landlords of mainland shopping centres and global luxury brands has entered a rocky patch as many top-end labels ease up on the pace of store openings in the key market.

The caution comes amid flat sales growth. Property analysts say the pace of store openings will continue to slow this year, despite the priority given to mainland expansion several years ago.

" A key reason is that the anti-corruption measures in China have curtailed the use of public funds for high-priced gifts. Meanwhile, for the more aspirational and price-sensitive customer groups, where there is still spending growth driven by rising incomes, they are increasingly going to Hong Kong or other low-tax destinations to buy luxury goods," said Steven McCord, a director of China retail research at Jones Lang LaSalle, Shanghai.

Sebastian Skiff, an executive director at CBRE Retail - Asia, said the price differential between the mainland and other markets became a bigger hurdle when consumers were buying for personal use, as opposed to purchases as business gifts.

Sales of luxury goods on the mainland edged up 2 per cent last year from 2012 to 116 billion yuan (HK$148 billion), according to consultancy Bain & Co. Sales grew 7 per cent in 2012.

According to a research report by Knight Frank and Woods Bagot released last month, 65 per cent of the international luxury brands they monitored missed their targets for store openings last year. Gucci, which had planned to open 10 stores, did not open any. Prada targeted seven stores but added only four. Burberry opened eight instead of 11.

"It's important to note that luxury retail sales growth has declined, not luxury retail sales values, which have still shown small but positive growth," said Paul Hart, an executive director for Greater China at Knight Frank. "In the primary cities, this may translate into a slowdown in rental growth in the luxury property sector, not necessarily a drop in rents."