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Gucci, Burberry demand lower Hong Kong rents as market wilts

[PARIS] Luxury companies including Kering SA are demanding lower Hong Kong store rents to reflect the island city's waning appeal with wealthy Chinese shoppers.

The owner of the Gucci brand may close some of its shops there if those costs don't come down, Kering Chief Financial Officer Jean-Marc Duplaix said late on Monday.

"Many landlords have not necessarily understood that the markets have changed," he said, speaking on a conference call with analysts.

UK trenchcoat maker Burberry Group Plc said last week it may also try to lower its rent bill after sales growth slowed to a two-year low. Luxury spending in Hong Kong, one of the world's largest hubs for high-priced shopping, has been suffering since China began discouraging extravagant spending among government officials in late 2012.

Hong Kong accounted for more than 10 per cent of first-half Kering's luxury retail sales, the company said.

Burberry, with 17 shops in Hong Kong, gets a similar proportion of sales from that city and Macau, excluding licenses.

Hong Kong's "halcyon days are gone," said Exane BNP analyst Luca Solca. He expects watch and jewelry makers in particular to close sites there, and rents will come down. "This should in time moderate adverse developments for luxury players."

Swiss watch exports to Hong Kong slumped 20 per cent in the first half.

Kering has also started renegotiating rents in Macau and mainland China as part of a wider plan to contain costs, Duplaix said. Rental costs for luxury companies in Hong Kong could drop 20 per cent in the next 18 months, according to John Guy, an analyst at MainFirst Bank AG.

"Hong Kong luxury consumption as a region has peaked," he said.

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