Luxury retail thriving in the “sweet spot”: report

Defying the weak GDP in Europe and Asia, luxury retailers are seeing growth in key markets this year, according to a new report by Colliers International.

While the general sentiment among retail is positive, luxury retail is performing particularly well, benefiting from the increased earnings of its wealthy customers. As luxury retailers see positive results in established markets, they are looking to expand in new places to reach new segments of consumers.

"I do not believe it's optimism, however, it’s a continued movement between the spend on luxury or value purchases," said Anjee Solanki, national director, retail services, USA for Colliers International, San Francisco.

"As emerging markets continue to develop, new money spend on aspirational items continue to grow," she said. "Culturally Asian Markets often view luxury goods/spend as a status statement. This is in addition to old money, where it’s a part of their generational up-bringing.

"[The] millennial community is also a fast pace growing group with strong income, who tend to use online channels."

Established success

Fifth Avenue in New York continues to have the highest retail rent, at $3,550 per square foot per year. This is followed by Hong Kong’s Queen’s Road Central and Canton Road, at about $2,000 each.

Rounding out the top 10 rent costs globally are Madison Avenue in New York, the Champs Elysees in Paris, Old Bond Street in London, Causeway Bay in Hong Kong, Bahnhofstrasse in Zurich, Via Montenapoleone in Milan and Stoleshnikov Lane in Moscow.

In the United Kingdom, retailers are flocking to London’s Luxury Quarter, an area encompassing Mayfair, St. James’ and Piccadilly. Chanel is one of the new tenants to the area.

Fendi New Bond Street store

Local retailers and new renters are having trouble affording the rising rents boosted by competition for limited space on prime avenues.

Paris has also had its share of openings on its high streets, as brands try to reap the benefits of tourist foot traffic. Within the year, Lalique opened a jewelry store on Place Vendome, Richard Mille has a new location on Avenue Matignon and Tiffany opened the doors to its largest European boutique on Avenue des Champ Elysees.

Interior of Lalique jewelry boutique

In November, Longchamp is expected to open a two-level retail outlet on the Champs Elysees, which will be its biggest door in Europe.

Milan is the reigning luxury retail capital of southern Europe, with almost no vacancies on its prime street Preciados.

Other cities in the region, including Rome, Barcelona, Lisbon and Madrid, have strong high streets. Lisbon is particular is growing its luxury occupants, with the opening of Michael Kors and the anticipated Galeries Lafayette store.

The theme in the Middle East is new construction.

Among the numerous new shopping centers, Dubai Holdings is working on the Mall of the World, which will have 800,000 square feet of leasable retail space.

British department store Fortnum & Mason also opened a store in Dubai, which is the first location for Fortnum & Mason outside Britain (see story).

Fortnum & Mason in Dubai

Canada, which was largely ignored by high-end U.S. retailers, is getting an influx of luxury chains.

Department store chain Nordstrom opened its first international store in Calgary, Alberta in Canada on Sept. 19. This is the first of six Nordstrom stores to open in Canada over the next few years, an important step in expanding the retailer’s global presence (see story).

Saks Fifth Avenue, which is now owned by Canadian Hudson’s Bay Corporation, is also expanding north, and will share space with the company’s flagship Hudson’s Bay store in Toronto, as well as opening a string of its outlet stores.

Emerging markets

In Brazil, sales of luxury products are expected to continue growing.

Mexico is experiencing a boom both in luxury and mass retail. High-end department store Palacio de Hierro is opening in the Polanco neighborhood in Mexico City.

Also in Mexico City, the malls Mundo E and Santa Fe are adding more international luxury brands, and the government is expanding Masaryk Avenue to court more luxury retailers.

Hong Kong’s physical retail space is becoming more dominated by mass brands, rather than luxury goods. Mainland Chinese consumers, who tend to be less affluent, are traveling to Hong Kong for shopping, and businesses are reacting.

Chinese consumers who do spend on luxury are choosing to do so overseas in Western countries.

Consumers in Hanoi, Thailand are also apt to shop overseas for luxury goods, since local shops are flooded with fake merchandise. Due to the lack of trust this creates, shoppers instead travel to Singapore or Europe.

Luxury retailers are expanding in Beijing, but at a slower rate. New stores for Givenchy, Balenciaga, Dior Kids and Armani Junior opened this year.

Givenchy store in Ocean Center in Hong Kong

Offline vs. online
The biggest threat facing traditional bricks-and-mortar stores globally is the growth in ecommerce.

One solution to the drain on in-store profits is to be more creative with how merchandise is displayed, creating a shopping experience that gets consumers to shop for items online.

Retailers can also create a more robust omnichannel presence, allowing consumers to shop whenever and wherever they want, for instance offering click and collect.

Not long ago retailers were afraid that showrooming would gut in-store profits, but now the implications of the trend seem to have reversed, according to a new report by L2 and RichRelevance.

Unlike “showrooming” where consumers let in-store prices duke it out with discounted online prices, “Webrooming” occurs when consumers research online before shopping in-store. However, many retailers are failing to provide consumers with the resources they need to make Webrooming a seamless affair, and are losing sales in the process (see story).

"It's extremely important to maintain an interconnected retail experience that the retailer is providing the customer," Ms. Solanki said. "Luxury retailers are masters in evoking an experience through their advertising campaigns, which continues to bricks-and-mortar.

"The strength of bricks-and-mortar is evident with the continued movement between countries, congregating in distinctive shopping areas...Although there are various distribution channels available, especially with the latest, Alibaba – it's creating additional exposure and providing the retailer to offer distinctive lines on various methods.

"It's our understanding through third party reports that ecommerce when done well will bolster sales. Ecommerce also only represents a small percentage of sales compared to in-store. Remember the threat of the retail catalogue?"

Final Take
Sarah Jones, editorial assistant on Luxury Daily, New York