Global luxury spend increased in 2018 albeit the number of new store openings declined, Savills’ annual Global Luxury Retail report shows, with flagship stores in ultra-prime luxury destination cities becoming ever more important in delivering a brand experience to drive physical and online sales.
Luxury spending globally increased 6% in 2018 according to Bain & Company, with Europe accounting for a third of sales, with forecasts pointing to further growth of between 3-5% per annum to 2025.
Chinese consumers continue to dominate accounting for a third luxury sales globally. Much of the growth in luxury spend in 2018 was driven by millennials and younger generations, those born after 1998, who together wield much greater spending power than their counterparts in other countries, accounting for a reported 15% of all household spending in China compared to 4% in the UK and United States.
Savills reported that the influence of this group on luxury brands and their stores will intensify as these younger generations enter the workforce and their incomes increase. However, last year the all-important Chinese consumer spent more domestically, according to Savills, which in part spurred a refocus on strategic and underrepresented markets materialised.
Luxury brand store openings by destination
Overall, luxury brands opened new stores in 85 cities last year, down from the 118 cities in 2017. As a result, total new openings globally declined 16% but largely at the expense of emerging luxury cities.
London regained its top spot accounting for 9.6% of all new luxury store openings globally with a 38% increase highlighting its resilience to Brexit uncertainty. Indeed, the depreciation of sterling in response to the Brexit result boosted international luxury retail spend in 2017, supporting requirements and subsequent new openings in 2018.
Hong Kong also benefitted from a return in Chinese visitor spend, with New York occupational demand supported by improving domestic conditions albeit compared to 2017 new store openings were down.
Bangkok and Dubai’s feature in the top five was largely boosted by increased store supply. For example, Bangkok saw the opening of the ICONSIAM mall that included a number of luxury stores. Dubai Mall’s Fashion Avenue extension also helped to propel the city into the top five.
Resilience of headline asking rents
Of the 26 global luxury locations tracked by Savills over a third reported year-on-year growth in 2018 with 50% maintaining headline rents. Six of the top nine performers were the key luxury locations in European destination cities with Asia Pacific cities taking the remaining top spots.
Paris was the lead performer with a 20% growth in prime indicative asking rents with Avenue Montaigne reporting a rise from €15,000 to €18,000 per sq m per annum over a 12-month period. This was driven by an improving tourist market, particularly from China, although this has been recently tempered by the gilet
Improved tourist spend in Hong Kong supported a return in occupier confidence and with it rental growth in its core luxury area. The growth, and resilience, of headline asking rents across a number of ultra-prime luxury locations underlines how important strategically located physical stores remain for global brands.
In investment terms, activity across the big luxury houses intensified over the last three years and reached $8.3bn, a 10-fold increased on 2016 levels across the top 10, based on known values, reported Savills.
The retrenchment to core destination cities seen last year will continue in 2019, Savills predicts. Smaller, emerging and underserved destination cities will prove attractive as and when specific opportunities arise.
However, shifting Chinese spend patterns suggest it will be major Chinese and global destination cities that will be the main focus for those luxury brands wanting to expand or improve their physical profile. As a result, Savills expects the move towards larger flagship stores that deliver digitally-enhanced experiences and showcase the full product line by the bigger luxury houses will intensify in 2019, with core luxury areas / streets being the key targets for this initiative.
This will maintain prime headline rents in these locations. Alongside this, greater use of experiential pop-ups by the heritage luxury brands will also become more frequent.
Pick up your copy of Living Retail today at the ICSC conference in Barcelona to read Josip
To get your personal copy please click here.
To do a video interview at ICSC in Barcelona please call Richard Betts on +44 7557 37 31 34 or send him an e-mail.