Pockets of resistance

What are you actually paying for when you dine out, buy clothes or join a gym? Jasper Moiseiwitsch and P. Ramakrishnan offer a guide on how to shop smart

Hong Kong is an expensive city and Hongkongers are extravagant, so it is often tough to tell when something is good value or a waste of money. In the pursuit of truth, and better finances, industry insiders give us the lowdown on how to shop for fashion, food and fitness.


How to shop for clothes

Despite the vagaries of fashion, this is a business with super-sharp internal economics. High-end labels with stratospheric prices quickly make any discussion of value absurd so we are looking at the mid-tier market, where most of the trade is.

On the one hand, there are the stores selling basic but quality items at low prices (such as Giordano, Uniqlo, Marks & Spencer). On the other hand are those selling a trendier look using cheaper materials (such as H&M, Zara, Esprit, Mango). The compromise on quality has not stopped legions of shoppers snapping up looks straight from the catwalk.

"It's disposable fashion," says Alan See, co-owner of men's haberdashery The Armoury.

Sanjeev Mahtani, managing director of clothing manufacturer Must Garment, says: "The advent of H&M, Zara and Mango brings fashion at a really affordable price. They take the runway fashions and bring it to you in a few weeks."

Mahtani says the industry expects these fashionable garments to be worn only 20 times - a couple of times a week for one season - before being binned.

For basic-item retailers, fabric accounts for about 80 per cent of the cost of producing a garment, says Ranjan Mahtani, head of garment maker Epic Group, and the items are made to be worn for a long time.

Stock that sits around for a long time kills margins and takes up expensive rack space, which is why slow-moving merchandise is so heavily discounted. The aim is to achieve an average selling price, which involves either selling items at a high mark-up or selling at a high turnover. This means selling fewer items at the beginning of a season at their normal mark-up, and then flogging them during sales at a lower mark-up to maximise turnover, explains Mahtani of Must Garment.

Bear in mind that international chains set their sales according to a global calendar. So you, the shopper, might not celebrate Christmas but the big international retailers in Hong Kong certainly do.

That means consumers should buy early in the season at higher prices if they want to catch hot fashion items in their size and colour. If they are shopping for basics, the best time to buy is during peak seasons - such as ahead of Christmas - when sales are brisk and vendors are focused on achieving high volumes with low prices.

If you want to know whether a garment will go on sale, check to see if the shop is running out of sizes and colours. If it remains well stocked through a season, it's likely to be heavily marked down in a sale.

Insiders all recommend that shoppers go online. All the big retailers sell over the net, and often for cheaper prices than can be found at the shops.

How to negotiate gym membership

Selling gym membership is a hard-nosed business. Competition and upfront costs are enormous. Operators have to fork out on equipment, long-term leases and stylish interiors and they are routinely hit by exorbitant rent hikes. This summer, California Fitness shut down its Central club - its first Hong Kong gym - after the landlord doubled the rent.

This explains why Hong Kong clubs work so hard to sell multiyear club memberships that lock in an income stream, which offsets the risk of their lease commitments.

"Long-term memberships facilitate your cash flow," says Colin Heggie, president of California Fitness. Heggie also oversees a gym chain in the United States (24 Hour Fitness), where most people buy monthly memberships. The difference in the US is that rent is a much lower component of overall costs.

That said, a multiyear membership is not always best for the consumer. Gyms go out of business. As Hong Kong's yoga club implosion has revealed, if a club goes bust, members who have paid for lengthy plans are out of luck.

"There are no laws to protect consumers when it comes to refunds of prepaid services, and gaining a refund even under legitimate circumstances - injury, medical reasons - is very difficult," says Andrew Ward, a group manager for YMCA Victoria, in Australia, and previously a gym manager in Hong Kong.

The good news for individuals is that the gym industry in Hong Kong has become more competitive, which has translated into lower fees. The bad news is that operators have also become better at packing their gyms with customers and long-term members may have noticed a decline in standards.

"Membership fees have dropped, in stark contrast to the cost of rent, labour and utilities," says Ward of the Hong Kong market. "Operators are forced to enrol more members to break even, which, from a member's point of view, is associated with a less personal service."

When discussing a membership plan, be aware that price is often negotiable (Ward calls this "seafood pricing", meaning that a gym's prices may change daily, according to a need to increase sales). If it is, be prepared to negotiate to the hilt, because you have just become a player in a cutthroat industry.

How to buy a restaurant meal

Ever wonder why there are so many Italian restaurants sprouting up? It's because pasta is cheap and the margins on Italian food are terrific. "It's all about cash flow and margins," says a top executive of a major restaurant and owner of a popular bar.

Many restaurants suffer from crushing rents and are doing what they can to get by. That may mean focusing on high-profit items such as pasta or desserts, or using cheaper ingredients and hoping lower prices will bring in volume. For others it's gambling on high-end dining so they can charge more for drinks.

"Dessert is a revenue generator. When a [regular] customer comes in and orders a wine, starter, main course, dessert, he gets the valuable real estate. When a guy comes in for a main course and water, and leaves every time, he's getting the worst table in the house for a reason," says Harlan Goldstein, owner of Gold.

If you are looking for good cheap eats, those in the industry go for rustic Cantonese food and other provincial Chinese cuisines, plus Indian and Thai.

The pricing dynamics vary for restaurants at five-star hotels. These use luxury restaurants to add glamour to the hotel, and some of their costs are bundled into the whole operation and may therefore be subsidised. They will also tend to use expensive imported ingredients so their food costs are well above the industry average.

These places make their money on wine and drinks. The mark-up on a nice bottle of Bordeaux might only be 25 per cent. But here, diners may order HK$15,000 bottles of wine. On that note be advised: even an entry level HK$350 bottle of wine at such places is likely to be good.

For high-end dining at a lower price, go for a set lunch menu, often much cheaper than evening prices and with less pressure to order wine.

It goes without saying that rental pressures drive this industry, too. Cheaper rents saw the scene move into SoHo just over a decade ago; now it's moving to Sheung Wan for the same reason. Diners see a lot of turnover and might rue the closure of a favoured eatery, but high rents are part of what makes Hong Kong's eating scene so dynamic.

But why does a cup of coffee vary greatly price for what is essentially the same drink (coffee beans, water, milk and sugar)?

"You're not just buying a product. You're buying everything affiliated with [it]," says Richard Feldman, chairman of the Mimosa Group and owner of Al's Diner. "The rent of the table space, the decor, the ambience, the pretty people sitting across at another table - it's the full package."



Byline: Jasper Moiseiwitsch and P. Ramakrishnan