Luxury’s Latest Battleground: Real Estate

Luxurious manufacturers are locked in a retail arms race that favours gamers with the size to maintain up with ever-escalating prices and capital expenditure necessities.

In recent times, flagship shops have grown bigger in addition to extra lavish, to not point out the brand new technology of VIP services. The toolbox of retailer animation actions has grown to embody eating places, bars, non permanent exhibitions and different cultural occasions, in addition to extra frequent merchandise drops. Efforts to generate foot site visitors have reached new heights, too.

Now, prime luxurious teams are opening a brand new entrance within the competitors: shopping for actual property to safe landmark areas. And the implications for second-tier manufacturers are critical.

Second-tier gamers with decrease retail area productiveness had been already struggling to remain on key luxurious streets — corresponding to Fifth Avenue in New York, Avenue Montaigne in Paris and Canton Highway in Hong Kong — as rents hit new highs. They actually can’t sustain with prime luxurious teams providing a whole lot of thousands and thousands of euros to purchase retailer areas outright.

The technique was pioneered by LVMH, which snapped up the Louis Vuitton retailer at 57th Road and Fifth Avenue within the early noughties. However the magnitude of at this time’s luxurious actual property tasks is unprecedented. Again in 2007, LVMH paid $60 million for the 57th Road retailer. That appeared like quite a bit on the time. (Centurion, the vendor, had purchased the identical constructing for $28 million three years earlier than), however it’s small change at this time.

LVMH is presently spending billions making actual property strikes in Through Montenapoleone in Milan (on the nook of Corso Matteotti and within the former Through Bagutta Traversi Storage) and on the Champs Elysées in Paris forward of the Olympics, and has main actual property plans in New York.

The group is forcing opponents that wish to attempt to play in the identical league to stretch their funds. Kering had countered the LVMH funding on the nook of Through Montenapoleone and Corso Matteotti, shopping for 8 Through Montenapoleone (reportedly for €1.35 billion). Prada not too long ago invested $425 million to purchase its retailer on Fifth Avenue in New York.

Given how way more money LVMH generates than its smaller opponents, this as soon as once more appears like a David and Goliath form of struggle… however the place is the slingshot?

Luca Solca is head of luxurious items analysis at Bernstein.

Disclosure: LVMH is a part of a bunch of buyers who, collectively, maintain a minority curiosity in The Enterprise of Vogue. All buyers have signed shareholders’ documentation guaranteeing BoF’s full editorial independence.