Luxury Brands Drive Out Locals in HK Central

In November, Hong Kong’s central business district appears likely to lose another establishment popular with the locals to accommodate hordes of mainland Chinese shoppers craving luxury goods.

The popular eco-supermarket ThreeSixty, occupying 30,000 square feet on two floors in The Landmark in Hong Kong’s central business district, may be about to close, say reliable sources connected to the Dairy Farm Group, which owns the space. The decision to close is still under active consideration, some sources say. Others do not see it that way. If the closure goes ahead, plans are for the space to be given over to a special area selling luxury brands, fashion and accessories designed to appeal to mainland shoppers.

Dairy Farm refuses to say if the store will close. A company spokesperson said only that: ‘Dairy Farm declines to comment as the company has entered the blackout period.’ That is the obligatory media black-out period leading to the announcement of Dairy Farm’s half-yearly results for 2012, which began on July 1 and ends following the announcement of the half-yearly results after the close of business on Thursday, 26th July 2012’.

‘Save ThreeSixty petition’

Any decision to close the store is sure to cause consternation, if not anger, among ThreeSixty’s many customers, who will be hard put to find the fresh, organic products they want elsewhere. An online petition “Save ThreeSixty” has been launched on Decisions by Hong Kong’s property oligarchs to drive local establishments out of business via skyrocketing rents so their space can be taken up by high-priced luxury brands has become a major sore point between Hong Kong and the mainland. Some 28.1 million mainland tourists arrived in the territory in 2011 – four times the territory’s entire population, causing rising tensions.

In business terms, other than unaffordable rental terms from sister company Hong Kong Land, Dairy Farm appears to be ceding a market sector it essentially created and currently dominate to arch-rivals Hutchison, owners of Park n’ Shop, who are known to have big plans for expanding their own organic/health sector.

The Dairy Farm Group, which owns and operates the Wellcome supermarket chain, also owns the upmarket Oliver’s delicatessen in adjoining Prince’s Building and the Jason’s Market Place, a somewhat pedestrian Singaporean transplant. Dairy Farm itself is part of the Jardine Matheson group, which in turn controls Hong Kong Land, the landlords of ThreeSixty. Dairy Farm does not divulge individual performance of its supermarket brands so it is hard to know how well ThreeSixty fares financially. According to the 2011 Dairy Farm annual report their three supermarket brands showed a 2% increase over 2010 with earnings of US$287 million.

Asia’s first organic retailer

Three Sixty, which opened its doors to the public in November 2006, claims to be Asia’s first and largest retailer of natural and organic foods along with earth-friendly household goods and personal items. Along with its convenient location and reasonable pricing, the concept quickly caught on and a second ThreeSixty quickly followed in 2007 in Elements in West Kowloon. Reports confirm ThreeSixty continues as a growing and profitable business with an upscale clientele seeking for healthy food choices. The idea that the Jason’s stores could replace ThreeSixty in terms of content and location meets with derision from ThreeSixty customers.

“That’s like comparing an Audi with a Mercedes,” said one.

Direct competitors, City Super in IFC and Great in Pacific Place, were quick to adopt similar approaches but not on anything like the same scale. ThreeSixty clearly retains the edge when it comes to location, range of organic produce and catering to special dietary needs such as gluten, soy and lactose free alternatives. The store also has the largest selection of organic wines available in Hong Kong and features a wellness center area offering a wide range of supplements and organic personal items.

Competition coming

Whether ThreeSixty closes or not, Dairy Farm is going to find itself in a fight as Hutchison goes ahead with its plans to expand in the organic and health foods sector via Great and their various Park n’ Shop brands as well as CitySuper, owned by Wharf/Wheelock, having given away their edge in an area it once dominated.

Opening at the same time and occupying the entire fourth floor of its premises, another successful ThreeSixty feature is the Food Court selling healthy fresh food prepared and served cafeteria-style from a dozen or so concessionaires or ‘partners’ in a variety of different cuisines. The Food Court and its take-away business makes a significant contribution toward solving the problem of feeding the thousands of captive office workers from the surrounding office towers at lunchtime.

However much Hong Kong Land and Dairy Farm may want to decide ThreeSixty’s fate behind closed doors, customers want to know why a store that does such good business, clearly fills a market need and is a financial success is about to be closed.

The answer according to the sources contacted is of course money. Hong Kong Land believes it will make a lot more money leasing the 30,000 square feet for luxury goods brands targeting buyers from the mainland.

Dairy Farm to lose out

That may or not turn out to be a sound business decision. A closure, if it comes, will not come without costs. As noted, Dairy Farm would cede pole position in a growth sector to its major competitors. And, given the staunch support for the ThreeSixty concept by senior management in both Hong Kong Land and Dairy Farm, considerable loss of corporate face could be involved. Back in 2006 the directors of Dairy Farm Group and Hong Kong Land sang a different tune:

“ThreeSixty is tapping into the growing consumer demand for organic, natural and environmentally friendly products and this is our true point of difference,” observed Ed Chan, Regional Director for North Asia, Dairy Farm group. Another called ThreeSixty a “values-based flagship lifestyle brand built on a vision to champion the wellbeing of people and planet.”

Given those remarks, it raises interesting questions shareholders in all three companies might care to ponder: Did the directors make a smart business decision creating a unique retail experience with a signature supermarket in Central in 2006? Or were they lacking in foresight by not devoting the space at the time to luxury goods brands for Mainlanders?

Are they now right to risk The Landmark’s sophisticated cachet in an attempt to play catch-up with the other property majors, who are a good five years ahead of the game in attracting the Mainland shoppers, when the company already captures the Mainland élite in the big-brand signature stores which now dominate street level Central?

Whether such a change of course is timely or not, Hong Kong Land may yet come to rue the day they drove yet another in a long line of prosperous businesses, in this instance one of their own, out of Central and pretty much completing the commercial desertification of the area into the mono-retail culture the area has now become. Given the current sense of social and political malaise in Hong Kong, coupled with an economic slowdown in China that shows no sign of abating any time soon, combined with the current political uncertainty in that country, not to mention the growing animosity felt by large numbers of Hong Kong people toward Mainlanders, whose sheer numbers and money they feel are taking over their city, the decision to evict ThreeSixty may not turn out to be such a smart business decision after all.


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