Burberry’s flagship store in Hong Kong shrunk as its sales decreased

Burberry Group Plc., the U.K. based manufacturer, wholesaler and retailer of luxury goods, is going to shrink its biggest flagship store in Hong Kong from two floors to just one, as its sales decreased in the city.

The luxury brand company has agreed with landlord Swire Properties Ltd. to give up the second floor of its shop in Pacific Place, according to Bloomberg.

Burberry's Chief Financial Officer Carol Fairweather said that the move is expected to drive increased sales per square foot and profitability in the store.

The Hong Kong flagship store space reduction is part of Burberry's "tight management costs" program to boost its profit, The Quartz reported. The program is an effort to improve efficiency and productivity that involves all sorts of measure.

Burberry's Hong Kong flagship store's expensive rents have been the largest cost in a major market for the company. Burberry has been renegotiating its lease deal with the landlord, and retail rents in Hong Kong are finally dropping.

Luxury labels stores in Hong Kong have been in challenging conditions as fewer Chinese buy expensive goods. Earlier in August, Swiss watchmaker TAG Heuer decided to shut the store in Hong Kong as sales decrease and high rental costs weigh on its profits. Other luxury brand Gucci said it may follow the store's closure.

Burberry said that its flagship store in Hong Kong remains profitable, despite its decrease on size. Hong Kong and Chinese shoppers account for between 30 - 40% of Burberry's global revenue.

In order to save costs, Burberry also recently decided to consolidate its three brands - Prorsum, London, and Brit - into one Burberry line. Some Burberry Brit stores had closed while others would be rebranded as just Burberry.

The company said that the response from wholesale buyers to the brand restructuring had been overwhelmingly positive.

The company group also save costs by cutting employee payments. Few weeks earlier Burberry announced it would cut its CEO Christopher Bailey's earnings. Burberry also cut performance related pay including bonuses in the first half of the fiscal year which worth about £30 million ($45.6 million).

In addition to costs management, to save employee travel costs and spendings, Burberry's employees are doing the off-site meetings digitally. The company is also managing to save other types of travel and discretionary spendings.

As the result of its costs savings, Burberry reported a surprise increase of its first half profits. In Reuters, Burberry's underlying pre-tax profits was reported to have risen by 3% to £153 million, while the previous analysts' forecasts average was £147 million. It achieved flat total revenue of £1.1 billion.