(March 18): New World Development Co, the Hong Kong real estate company controlled by the billionaire Cheng family, is in talks with luxury giant Louis Vuitton to open a mega store in one of the developer’s signature malls, according to people familiar with the matter.

The new store would occupy about 40,000 sq ft at the K11 Musea mall, making it one of Louis Vuitton’s largest in Asia, said the people, who asked not to be identified discussing private matters. The store could feature a museum, a cafe and a lounge for the brand’s VIP customers, they said. Details over rent remain unclear. 

Discussions are at an advanced stage, but details could still change and the deal could still fall apart, the people said. 

New World didn’t immediately respond to a request for comment. A spokesperson for LVMH declined to comment.

New World’s shares rose as much as 10% on Tuesday. LVMH stock rose as much as 1% in early trading, but was still down about 28.5% in the past 12 months. 

If an agreement is reached, the expansion of fashion conglomerate LVMH’s largest brand would inject some confidence into Hong Kong’s retail industry and help its ailing commercial property sector. It would also be a boost for New World, which has been struggling with debt woes and uncertainty over its leadership. The group’s retail rents and valuation for its investment properties could rise with the new store strengthening its retail presence and drawing stronger foot traffic, said Bloomberg Intelligence analysts including Patrick Wong and Daniel Fan in notes on Tuesday. 

Located near the city’s famous Victoria Harbor, K11 Musea is a popular destination for tourists, and its exclusive private members clubs have attracted a group of wealthy clientele through the Cheng family’s networks. LVMH’s proposed ultra-exclusive mega store underscores the luxury brands’ efforts to wring more growth from the ultra-rich who are less affected by an economic slowdown in China, which has sapped demand among middle-class shoppers. 

The French luxury conglomerate said in January that sales at its key fashion and leather goods unit, which include the Louis Vuitton and Christian Dior brands, had fallen 1% in the fourth quarter amid choppy demand. Sales in the region that includes China dropped 10%, the only geographic area that did not show growth. 

LVMH’s results raised concerns that the industry’s recovery from last year’s slump may be slow and uneven, with chief executive officer Bernard Arnault warning of a “gradual recovery” in China. 

While Hong Kong has been suffering from declining retail sales and a slow recovery in tourism, the city still has the highest concentration of millionaires in the Greater China region. It was ranked the world’s ninth wealthiest city, according to a report published last year by investment migration company Henley & Partners in partnership with intelligence firm New World Wealth.

K11 Musea is accelerating its pivot to luxury shopping with Prada SpA opening a new store and other high-end labels, including LVMH’s Loewe and Kering SA’s Saint Laurent and Balenciaga upgrading their facilities. Louis Vuitton’s debut fashion show in Hong Kong in 2023 was hosted in front of the centre. 

Facing mounting pressure over its debt burden, New World has proposed pledging some of its most-prized properties valued at a total US$19.1 billion (RM84.7 billion), in order to refinance its loans, Bloomberg News reported earlier this year. K11 Musea, located on a site where the Cheng family has owned properties since the 1970s, is seen as a heritage asset for the clan. The family is the centrw of an ongoing succession saga with patriarch Henry Cheng saying he is still looking for someone to take charge of the family business.

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