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Luxury Retailers Still Thriving

August 25, 2022

Developer Jeffrey Soffer is recruiting 35 high-end brands to tenant the recently announced 90,000-square-foot, two-level retail center he’s adding to the planned Fontainebleau Las Vegas on the Strip. Set to open in late 2023, the 173,000-square-foot luxury hotel will include 3,700-plus rooms, a casino, restaurants and a 550,000-square-foot convention hall. Soffer has not announced any tenants yet, but a host of luxury brands are in expansion mode.

Global luxury chains started investing in North American bricks-and-mortar stores again late last year, bringing new, high-end store openings back to pre-pandemic levels, according to a report from Savills. Global fashion chains are opening shops in the U.S. as sales slow in pandemic-restricted China and war-torn Europe, the firm reported. French designer Isabel Marant opened a unit on Manhattan’s Madison Avenue in July, Prada opened its first permanent Hamptons store in East Hampton, New York, and German label Closed opened its first U.S. store in Los Angeles.

As tourists and domestic shoppers return downtown, American luxury brands, too, are taking advantage of relatively low rental rates and rising traffic by opening flagship stores on urban streetfronts. High-end accessories retailer Lafayette 148 New York opened its 27th store, a 1,500-square-foot unit at Houston’s Galleria, Houston. Last month, the retailer opened a store in Naples, Florida, which followed its first Canadian store, which opened in Toronto in May.

They’re also flush with cash as wealthy consumers keep spending despite inflation, according to Acadia Realty Trust president and CEO Kenneth Bernstein. The company owns streeftront properties in top urban markets that are tenanted by many high-end retailers, he said, and they’re doing well. “For those retailers serving this more affluent consumer, pricing power remains strong and shopping demand remains solid. In fact, while the consumer sentiment index worsened in July in general, it actually improved for those earning more than $100,000 a year.”

And high-end labels increasingly are willing to venture into new territories to find growth. Italian luxury brand Gucci, for one, opened a 3,500-square-foot store on Library Street in downtown Detroit. The Gucci store joins other trendy retailers like Bonobos, Lululemon and Warby Parker that have opened recently in the once blighted area. Gucci is making a concerted effort to get closer to customers in middle markets. In May, it opened a store in Columbus, Ohio's Easton and plans to open at Kenwood Towne Center in Cincinnati, Ohio, this year. Gucci parent Kering — which also owns Balenciaga, Brioni, Saint Laurent and a handful of growing smaller labels — is seeking a vice president of real estate for the Americas to be based in New York City.

Many luxury retailers may be bullish on U.S. growth even amid talk of a possible recession, but not Macy’s Inc. and Nordstrom. Nordstrom’s sales expectations are weighed down by its off-price Nordstrom Rack division, whose lower-income consumers are cutting back on spending due to inflation. “The lower-income customer segments saw significantly more pullback versus higher-income segments,” CEO Erik Nordstrom said on a second quarter earnings call. He said customer traffic and demand began to decelerate in late June, mainly at the company’s off-price Rack stores, and he expects sales to continue to slow in the second half. Macy’s Inc., meanwhile, warned investors that an anticipated second-half pullback by middle-income consumers at Macy’s stores would drag down any sales growth expected at the retailer’s higher end Bloomingdale’s and Bluemercury businesses.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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