Luxury brand Chanel has made a significant move by signing one of the largest lease agreements since the start of the pandemic. The lease is for a prime retail space located in the bustling shopping district of Causeway Bay in Hong Kong.

The deal demonstrates Chanel’s focus on maintaining a strong presence in the thriving retail market. The rented shop spans two floors and is situated in front of a subway station exit, boasting a sizable facade.

The space was previously occupied by Forever 21 and Victoria’s Secret. The exact rental amount has not been disclosed, but it has been reported that Chanel will pay over HK$3 million ($383,000) per month for the space.

Why Chanel is doubling down on China

Hong Kong has experienced a resurgence in tourism following the easing of travel restrictions earlier this year. In April, the number of visitors surged to nearly 3 million, compared to under a million in January, according to the Hong Kong Tourism Board.

China has also seen a sharp uptick in post-COVID travel and consumer activity. Retail and catering sales have risen by 21%, with food chains reporting a 37% revenue increase and clothing sales rising by 21%. Sales of jewellery, cigarettes, and alcohol have climbed by 17%.

The city has witnessed a significant increase in insurance sales to visitors from mainland China, amounting to about 75% of the level recorded in the same period in 2019.

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Opportunity in the declining real estate market

Rental prices in Causeway Bay have declined due to protests and the pandemic, presenting an opportunity for luxury brands like Chanel to secure shopfronts at lower costs.

Rental rates in Causeway Bay, as of March, were only 30% of the peak levels seen a decade ago, according to Colliers International.

While other global luxury brands have redirected their focus away from Hong Kong, anticipating a rise in domestic shopping by Chinese consumers, Chanel sees a chance to capitalise on the discounted real estate market in the world’s most expensive retail market.

Slowdown in US sales and growth in China

Chanel has experienced a slowdown in sales in the United States. The Financial Times reported that after achieving about 10% growth in 2022, the brand shifted to “single digits” for the current year.

However, Chanel has seen double-digit growth in China following the relaxation of COVID restrictions and an increase in sales to Chinese customers across various countries due to the resurgence of Chinese tourism.

Other luxury brands, such as LVMH and Kering, have also witnessed growth in sales among Chinese consumers. While there were concerns about the luxury sector’s outlook in the US, Chanel remains confident in its outlook for the year and beyond.