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Seeking Retail Success in Macau? Play by the Rules

Rumours and regulations can make the Macau retail market daunting for newcomers, but putting a well-researched, long-term strategy in place can result in big pay offs

​​​​​AP-MAC-retail-street-banner.jpgMacau is a very different market to its neighbour Hong Kong, and international retail brands that discover this too late can get burned. Cutting regulatory corners, or relying too heavily on in-house project teams without local market knowledge, can have costly repercussions.

It is relatively straight-forward to open most small shops or a store in a casino mall because the regulations have been simplified. However, this is not the case with street-level shops over 120 square metres, or those in the historic centre of Macau, a UNESCO world heritage site. Occupiers of these stores must wait 105 days for the Macau government to issue a construction permit. With potential monthly rental costs of millions of dollars, failure to abide by the rules can leave retailers in a financial tight spot. 

“We see many cases where unsupported retailers haven't been able to open a shop, despite signing the lease and paying the deposit, because they haven’t cleared all the regulatory hurdles, or received building permission,” reveals Oliver Tong , JLL’s Associate Director, Retail, Macau

In Macau’s main shopping area, around the ruins of St. Paul’s, the government’s Land and Public Works Bureau even needs to get the nod from the Cultural Department in order to sign off on stores.

Not following the rules ended badly for one international jewellery brand in the area two years ago, after they rented a space for HK$800,000 per month and paid three months deposit. 

“Two days after they started construction, the authorities instructed them to halt the works. If they had then waited the standard 105 days to be granted a building permit, they would have lost HK$4 million. In the end, they just gave it up. I’ve seen a lot of examples like that,” says Tong. 
Retailers looking to avoid these pitfalls should find a reputable architect to check over their building plans and determine whether they will win official approval. They should also ensure they leave enough time to navigate government procedures. Tong recommends a total time frame of at least ten months. 

For retailers with the right approach, the outlook for the retail sector in Macau is promising. While the market has been hit by Beijing’s crackdown on corruption and the slowdown in the mainland economy, 30 million mainland tourists still flocked to Macau in 2015—an impressive number for a city of just 600,000 residents.

In April 2016, mainland visitor numbers rose by 1.2 per cent year-on-year to 1,651,662, according to the Statistics and Census Service (DSEC). 

“Holidaymakers come to Macau in the mood to spend. Having just two principal shopping areas—Saint Domingo on the street level and Cotai for mid-range shops—makes the market easier to manage for retailers,” explains Tong.

Local residents have also become more affluent, and local consumption now accounts for around 60% of Macau’s total retail sales, compared to 40 per cent just five years ago.

Nonetheless, luxury brands have felt the pinch of the current economic climate, with watch and jewellery sales declining 26 per cent in 2015 compared to the previous year. However, many top sports brands are moving in to take up key street level locations, because the increasing supply of vacant premises is driving rents down. 

“For mass and middle-market products, retail sales are expected to be solid, despite forecasts of a further 10-15 per cent drop in overall retail sales,” predicts Tong. “The decline is largely due to the downturn in the luxury sector."

Cosmetic brands have been outperforming the market and proving ever more popular with customers. Cosmetic retailers including Innisfree and Nature Republic have doubled their footprint in the Saint Domingo area in the past year to meet demand. Overall, cosmetics sales grew by 21.3 per cent in the first three quarters of 2015, DSEC figures show. 

Tong's best advice for newcomers to the city is to implement a long-term retail strategy, and resist the temptation to regard Macau as a “cash cow.” Retailers shouldn’t assume that the city’s casino culture— where visitors like to spend their winnings or crave retail therapy when they lose—means that they will line their pockets with gold overnight. 

Swarovski is one example of an international retailer taking a longer-term view and planning ahead to enjoy retail success. It worked with JLL for eight months to secure a favourable lease on a shop in Saint Domingo for HK$1.3 million per month. 

“At first they were not confident that they would be able to obtain building permit, but then they met with local architects, researched the market, made the submission in the right way and it paid off,” says Tong.

Following the best practices recommended by JLL has also contributed to the success of international retail brands such as Naraya, Furla and Ecco, the supermarket chain Park n Shop, and food and beverage brands Sky 21, Jak’s, 1968 and Nana.  

For more information on JLL's services in Macau, visit our Macau website.

To find out more about starting out in Macau retail , please contact Oliver Tong​.

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