New openings demonstrate liveliness of a luxury market underpinned by a rise in tourist spending
• The rapid development of international tourism and the rise in spending by visitors from emerging economies benefit the luxury market, especially in Paris, one of the world’s leading tourist destinations.
• Approximately one hundred luxury stores have been opened in France since 2011.
• The expansion of major groups (LVMH, Richemont, etc.) and the ambitions of new players (Qela, etc.) sharpened the appetite of retailers for prime retail slots in France.
• Prime rental values naturally continued their ascent in 2012, even occasionally crossing the symbolic threshold of €10,000 / sq. m. / year (Zone A).
• The luxury market is expanding gradually beyond the most established luxury shopping streets into neighboring submarkets (rue de Marignan, boulevard des Capucines, etc.).
• The luxury market could slow in the coming months because of a shortage of high-quality locations.
The recent announcement of the opening of the first Qela store (owned by Qatar Luxury Group) at 50 avenue Montaigne, and the grand opening by the Swiss Bucherer at the end of April of the largest multibrand watch store in the world at 12 boulevard des Capucines, provide the occasion for Cushman & Wakefield, the world’s largest privately owned commercial real-estate consultancy firm, to present this overview of the luxury retail market. “The upcoming opening of two Berluti shops (rue du Faubourg Saint-Honoré and rue de Sèvres) and the Hermès Group’s grand opening of its first Shang Xia store outside China (also on rue de Sèvres) will make 2013 a very exciting year in terms of openings, after the significant momentum already observed in 2011 and 2012 in Paris,” stated Pierre Raynal, Head of Retail Agency at Cushman & Wakefield France.
EUROPE : A KEY MARKET FOR LUXURY RETAILERS
Consumer spending on luxury goods in emerging countries has been crucial for the performances of the sector's companies. For example, Asia (excl. Japan) accounted for 32% of Hermès’s sales and for 28% of LVMH Group’s sales in 2012. These performances were attributable largely to growth in the luxury market in China, where retailers are building their networks in the largest conurbations and expanding to secondary cities. Growth was also due to new markets in central Asia (Brioni in Tashkent, Uzbekistan, and Louis Vuitton in Almaty, Kazakhstan) and in southeast Asia (Piaget in Phnom Penh, Cambodia, and Hublot in Manila, Philippines).
The luxury-goods industry also depends on spending by emerging-economy consumers abroad. Half of all international tourists in 2012 traveled to Europe, not least because Europe offers luxury goods at prices that are more competitive than those in emerging markets. Consequently Europe remains one of the sector's principal markets. “In 2012, Europe’s major luxury destinations witnessed numerous projects for new stores, expansion, and refurbishment. Examples are the new Tom Ford flagship store on Sloane Street in London, the opening of the Prada flagship store in the Galleria Vittorio Emanuele II in Milan, the redevelopment of the Cartier store on Via Montenapoleone in Milan, and the new Chanel store at the Piazza di Spagna in Rome,” explained Mr. Raynal. As the birthplace of the most prestigious maisons de couture and the world’s leading tourist destination with London, Paris has also benefitted from this effervescence.
TOURISM : THE DRIVING FORCE BEHIND THE LUXURY SEGMENT IN FRANCE
In 2012, Paris again benefited from the growth in global tourism. The decline in the number of visitors from European countries the most affected by the crisis, such as Spain and Italy, was compensated for by the strong increase in the number of tourists from emerging economies. Growth in the number of visitors from China has been particularly significant, with total figures up by more than 50% since 2007; and while still relatively modest compared with the number of western and Japanese tourists, this figure does not do justice to the weight that these new visitors represent in terms of tourist spending in France. According to Global Blue, Chinese tourists accounted for nearly one-third of all spending in France in Q4 2012. Six other Asian countries (Indonesia, Thailand, Singapore, etc.) figure in the top 10 spending countries.
The recent change in the Paris hotel landscape demonstrates a growing desire to improve conditions for the reception of these tourists, whose numbers are expanding rapidly, and not to give up ground to other major international tourist destinations in terms of high-end lodging capacity. Numerous refurbishments, reopenings, and grand openings of ultraluxury hotels will bring the total number of Paris luxury hotels up to 15 in 2015, compared with 9 in 2000. “The opening of the Shangri-La in 2009 and the Mandarin Oriental in 2011, the planned opening of the Peninsula in 2013, and the reopening by the Raffles Group of the Royal Monceau in 2010 illustrate the arrival of new foreign operators determined to benefit from the rapid growth in the number of Asian tourists. These tourists, with their enthusiasm for prestigious brands, also attract the attention of major luxury retailers, a phenomenon that explains why department stores and boutiques in Paris airports are more and more luxury oriented” analyzed Mr. Raynal. The opening of the building linking terminals 2A and 2C at CDG airport in 2012 also saw the unveiling of a new zone called L'Avenue. Modeled after Paris’s avenue Montaigne, this new shopping zone gives center stage to luxury brands (Hermès, Prada, Gucci, etc.).
But the real story behind the sharp rise in spending by foreign tourists lies in the astounding number of luxury-retailer openings in a handful of Parisian shopping streets. “Just under a hundred luxury stores—creations, extensions, refurbishments, and pop-up stores—have been registered in France since 2011, most of them in Paris or on the Côte d’Azur,” commented Mr. Raynal.
THE HISTORIC CENTER OF THE LUXURY MARKET RETAINS ITS DOMINANT POSITION
The changes seen in Paris have been concentrated mainly in the historic center of the French luxury market. Avenue Montaigne and rue du Faubourg Saint-Honoré have been the theatre of a large part of activity in Paris since 2011. Through numerous new openings, expansion, and redeployment of new concepts, major retailers manifest their desire to reinforce their networks and expand their footprint. For example, Giorgio Armani (at no. 2) and Chanel (at no. 51) have opened their second stores on avenue Montaigne, while Valentino has just unveiled its new concept store (at no. 17). The development of LVMH Group brands also continues, with the transfer of a Fendi store to 51 avenue Montaigne and the forthcoming opening of a 800 sq. m. Berluti store at 9 rue du Faubourg Saint-Honoré. “The Faubourg is especially valued by major Italian brands, as seen with the 2011 opening in Faubourg One of new Brunello Cucinelli, Moschino, and Blumarine shops. The new 500 sq. m. Ermenegildo Zegna store opened at no. 50 in 2011, Moncler’s transfer to no. 7 planned for September 2013, and the expansion of Prada, which now has a showcase of nearly 2,000 sq. m., all bear witness to the determination of luxury retailers to have large flagship stores that anchor their visibility on a global scale,” explained Mr. Raynal.
Place Vendôme and rue de la Paix were no exceptions to the momentum that has gripped the Paris market. Place Vendôme was notable for the intense investment activity it attracted, with the early 2013 acquisition (for €135 million by the State Oil Fund of Azerbaijan) of a private mansion that houses the new space for Dior Jewelry and Timepieces. Place Vendôme also benefitted from LVMH’s desire to reaffirm its footprint in this historic neighborhood of watch and jewelry shops. For example, the French group, which took a controlling interest in Bulgari in 2011, acquired no. 4 place Vendôme and opened the first Louis Vuitton jewelry store and workshop at no. 23. Meanwhile Swiss group Richemont is not idly standing by. In addition to the Jaeger-Lecoultre store’s expansion— located on Place Vendôme—there were several openings on rue de la Paix (e.g., Vacheron Constantin, IWC, A. Lange & Söhne).
NEW PLAYERS, NEW NEIGHBORHOODS: TOWARDS A REORGANIZATION OF THE LUXURY MARKET?
“Lettings transactions completed over the past two years in the Paris luxury market and on the Croisette, in Cannes—the leading luxury destination outside Paris, where Céline recently opened and Giorgio Armani will soon open—served to reinforce the dominance of players long established in France. Eager to advance their distribution strategies, retailers already present in France through department stores and multibrand retailers have announced plans to open their own shops in France," explained Mr. Raynal. Certain Richemont Group retailers previously mentioned have opened their first single-brand store, on rue de la Paix. A new breed of market participant has also appeared, as exemplified by Qela, a brand only recently created by Qatar Luxury Group, which plans to open a Qela store at 50 avenue Montaigne in 2013.
Despite such changes, the fundamentals of the luxury market remain unperturbed. “The luxury sector may be booming, but this euphoria has not led to a restructuring of the sector in Paris and the rest of France. There are very few thoroughfares that have the power to attract the most prestigious retailers, which unsurprisingly remain highly selective in the neighborhoods they choose. Leasing opportunities are therefore rare and all the more limited by the expansion of major groups and new ambitious retail players, all of which have their sights set on the same prime retail slots,” stated Mr. Raynal.
This intensely competitive environment has contributed to the continuing rise in rental values. Prime rental values on avenue Montaigne and rue du Faubourg Saint-Honoré leapt 23% between January 1, 2011, and December 31, 2012. Rental values for the most attractive slots may soon exceed the symbolic threshold of €10,000 / sq. m. / year (Zone A). Under the circumstances, and given the severely restricted supply available for the principal Parisian luxury markets, the demand from prestigious retailers occasionally spills over into submarkets near the most established thoroughfares. This is particularly true for rue de Marignan—in the heart of the Golden Triangle—whose address closest to avenue Montaigne has recently aroused interest among several retailers (e.g., Azzedine Alaïa, owned by Richemont Group).
Other Parisian thoroughfares have performed well, benefiting doubly from their proximity to certain historic luxury markets and from high numbers of visitors.
• Rue Saint-Honoré is especially representative of the changes under way, although its upscale trend dates to the end of the 1990s, with the opening of the Colette multibrand concept store and the Hôtel Costes. Rue Saint-Honoré saw its status as a major luxury destination reinforced significantly by the opening of the Mandarin Oriental in 2011, a five-star hotel sold by SFL to Mandarin Oriental (a Hong Kong chain). In addition to numerous stores opened in 2009 and 2010 (Omega, Jimmy Choo, Fratelli Rossetti), nearly a dozen openings of both historic and newcomer luxury retailers have also occurred since 2011. Many of these retailers are established in the area between rue Cambon and rue Castiglione, not far from the Mandarin Oriental (Chloé, DSquared, Armani, Tom Ford, and Chanel’s much-anticipated future flagship store).
• The Opera district is also being transformed. In addition to upmarket department stores on boulevard Haussmann, boulevard des Capucines—traditionally dominated by mass-market retailers and services—will soon see the grand opening of the largest luxury-watch store in the world, in the former Old England flagship store. In addition to this megastore, several luxury boutiques will open to serve a largely Asian clientele, a clear declaration of the ambitions of the timepiece sector in this neighborhood near rue de la Paix. Tag-Heuer (LVMH Group) will move into the premises vacated by Cameroon Airlines, just steps away from the future Cartier (Richemont) and Omega (Swatch Group) stores.
• Lastly, after the openings of the Ralph Lauren, Burberry, and Hermès flagships in 2010, the triangle formed by boulevard Saint-Germain-des-Prés, boulevard Raspail, and rue de Sèvres has also experienced large-scale transactions. In a few months, Hermès will open its first Shang Xia store outside China, at the corner of rue de Sèvres and rue des Saints-Pères. At the end of 2012, at 32 rue de Grenelle, Paul Smith opened a store dedicated exclusively to his women’s collection. “LVMH has left an indelible footprint on the neighborhood, with store openings of three of its brands: Céline at 16 rue de Grenelle, Berluti (subsequent to the acquisition of Arnys) at 14 rue de Sèvres, and Louis Vuitton in Saint-Germain-des-Prés, on the site formerly occupied by the La Hune bookshop and an Arthus Bertrand store. Unlike the major luxury thoroughfares on the Right Bank, this neighborhood depends largely on an affluent local clientele and insider tourism,” said Mr. Raynal.
OUTLOOK FOR THE LUXURY MARKET IN FRANCE AND ABROAD
The numerous transactions that will enliven the Paris luxury market in 2013 will be mainly the final phases of projects and transactions begun over the past two or three years. “It is very likely that the excitement seen over the past two or three years will not persist, at least not in the short term, because numerous retailers have recently adopted a more moderate rhythm of development,” observed Mr. Raynal. This change is not limited to the Paris market. Several groups recently reported their desire to slow down international expansion and, in some cases (Gucci, Chanel, Valentino), to focus more on the refurbishment and expansion of existing stores. Although some retailers seem inclined to slacken their pace, and although short- and medium-term threats are omnipresent (e.g., geopolitical trouble, increasing power of e-commerce, risk of luxury brands becoming commonplace), this slowdown should only be temporary. The continuing rise in the number of millionaires and the strong expansion of the middle class in emerging countries demonstrate the still-considerable consumption potential.
As the capital of the most visited country in the world, Paris will continue to occupy an important place in expansion strategies of major luxury groups, whether historic brands or new ones, arising from capital of emerging countries (Giada, Vionnet) or from the strategies of large groups that wish to enhance their attractiveness to Asian customers (acquisition of Qeelin by PPR Group, creation by Hermès of the Shang Xia brand). This trend could continue over the coming months in the form of new openings, although highly targeted development with strict geographical limits will continue to define the strategies of most luxury companies. Traditional luxury sectors (avenue Montaigne, place Vendôme, rue du Faubourg Saint-Honoré) and the few thoroughfares that, in recent years, have been the theatre of unmistakably upmarket trends will continue to be the focus of luxury retailers’ attention. “Despite the shortage of available space on Paris’s most prestigious thoroughfares, it is unlikely that new luxury districts will emerge, with the possible exception of Le Marais, which offers numerous advantages. Le Marais, where Helmut Lang has just announced that it will open its next store, has become an essential neighborhood for fashion. It enjoys high visitor numbers of both foreign tourists and affluent Parisian consumers, and benefits from the transformation under way of the Samaritaine and BHV, as well as from extended opening hours on Sundays,” concluded Mr. Raynal.