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Luxury Brands Hit Store-Expansion Mode

December 16, 2022

Luxury brands like Hermes, Gucci, Chanel and Dior have more in common than their exclusive clientele. They also have opened new U.S. stores or announced plans for them over the past two years.

Luxury sales that contracted during the pandemic are bouncing back, and along with those higher sales, these retailers are turning their attention to store expansion. Men’s and women’s tailored apparel was challenged during the pandemic when everyone was at home wearing Lululemon. “Last year, there was a lot of spending coming out of the pandemic on apparel, accessories and shoes. This trend continued into 2022 and may moderate somewhat in 2023, though there are no signs at the high end that apparel sales are slowing,” said Richard Hodos, JLL retail services vice chair in New York.

According to JLL, luxury sales in the U.S. decreased by 14.3% in 2020. However, they have rebounded fully as people got back to routines and had reasons to get dressed up again. U.S. luxury good sales for 2022 are expected to be on par with 2019 and to rise steadily to $81.6 billion by 2027. Placer.ai’s Luxury Retailers Index of more than 120 retailers across the country showed October store traffic up 0.6% compared with October 2019.

Post-pandemic spending is fueling store expansion. “The luxury retailers have realized that they need the brick-and-mortar presence, and to the extent that they are doing well, they want to expand that presence in key markets and in major malls,” said Hodos. At South Coast Plaza in Costa Mesa and some other A and A-plus properties, there is a battle among luxury brands like Richemont, LVMH, Chanel and Prada to get the best real estate.

Pandemic lockdowns reinforced the importance of stores and in-person shopping for luxury brands. Consumers spending on big-ticket items like $3,000 handbags or $5,000 sport coats often want to touch and feel them before they make that purchase. “The luxury shopping experience is so personal and elevated that it tends to drive more customers to shop in-store,” said Retail Strategy Group principal and founder Liza Amlani. “Physical retail is something that truly matters in that luxury world. Customers are looking for an elevated experience, and luxury is giving it to them.”

Location Strategy

Store expansion is a common theme across global luxury brands from apparel to accessories. For example, Ralph Lauren has opened 450 full-price stores since 2018 and recently said it plans to open another 250 or so over the next three years. Its expansion plans skew heavily toward Asia and Europe: 200 in Asia, 40 to 50 in Europe and 15 to 20 in North America. Luxury watchmaker Richemont, parent company of brands like Cartier and A. Lange & Sohne, is expanding its multibrand concept TimeVallée to 100 locations over the next five years, including underserved markets in the U.S., according to a 2021 Robb Report article.

The U.S. continues to be a focus for many global brands. “Before the pandemic, luxury retailers were looking internationally for most explosive growth, but because of geopolitical uncertainty, the United States is now seen as the optimal location for luxury expansion,” said Colliers national research manager for retail Nicole Larson. According to Colliers, the U.S. is the biggest global luxury market, recording $63.3 billion in luxury sales in 2021. In 2019, pre-pandemic, Americans spent more on luxury goods than did consumers in China, Italy and Japan combined.

However, luxe brands also recognize that the fastest growth is coming from Asia-Pacific. Despite lockdowns, China is on track to become the world’s largest luxury goods market by 2025, noted Larson.

Specific to U.S. strategies, luxury brands see opportunities not only in traditional luxury markets like New York City, Miami and Beverly Hills, but also in previously overlooked secondary markets like Nashville and San Antonio. For example, Gucci plans to open at Ross Park Mall in Pittsburgh in early 2023, joining other upscale tenants like Tory Burch, Tiffany & Co. and Louis Vuitton.

According to JLL, luxury retailers like Hermes are pursuing a “two-pronged” strategy, targeting traditional urban corridors and new growth markets in the Sunbelt. Hermes has announced two new stores in the past year in New York City, as well as a new location in Austin, becoming the first luxury retailer on South Congress Avenue.

Many of these location strategies are data driven. In particular, brands are digging in to find where their customers have shifted since the pandemic. “They’re leveraging data from digital sales and digital engagement over the past couple of years, and that is driving the hyperlocalization of the stores they’re opening,” said Amlani. Some luxury brands like LVMH and Hermes also are using that information to personalize the product assortment for a particular location. “They are really utilizing consumer insights to drive the decisionmaking from product assortment to store location,” said Amlani. Art is meeting science, and data is starting to drive more of those decisions, and that is a trend that is not just occurring in luxury, she added.

Luxury Shoppers Are Resilient

Luxury retailers are likely to feel some of the effects of a slowing economy and potential recession in 2023. U.S. luxury brands have been raising their prices over the past few years, and although customers have continued to buy upscale products, signs of weakness are emerging, according to Larson. Some consumers have started to trade down to cheaper products, and the selling environment has become more promotional, meaning competitors are offering discounts more aggressively, she said. Aspirational customers, in particular, may pull back on luxury spending in a more difficult economy.

That being said, the luxury customer has a reputation for being resilient. They have money, and they’re spending it. “The higher-end consumer is still doing well despite the fact that their stock portfolios might be down,” said Hodos. “So our crystal ball sees a pretty good holiday season ahead of us and growth into the New Year for luxury and higher-end stores.”

Luxury brands also are doing different creative things with pop-ups and Instagram activation to test concepts and appeal to a younger audience. For example, in New York City, LVMH has an exhibit in the former Barneys store on Madison Avenue, and Hermes is focusing on trendy neighborhoods like Brooklyn’s Williamsburg as a way to cultivate younger customers and grow its customer base, noted Hodos. “I think the luxury brands are going to continue to expand and invest through a recession,” driven partially by competition to secure the best locations, he said.

By Beth Mattson-Teig

Contributor, Commerce + Communities Today

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