Brands of all sizes are on the lookout for the next luxury retail hot spots in the UK’s major cities.
Luxury brands are always searching for the next international market to conquer, but there are pockets of untapped potential closer to home in the UK and Europe that could prove just as rewarding as more exotic locations.
That potential is illustrated by the latest results of the large luxury groups. In the five months to September 12, sales at Richemont - which owns Net-A-Porter, Dunhill and Chloé among others - rose 10% in Europe and the Middle East compared with 4% in the Far East. Richemont said in a statement: “Good growth in Hong Kong and Macau [was] offset by lower sales in mainland China, largely reflecting a prudent consumer sentiment after several years of exceptional expansion.”
By comparison, sales performance was high in Europe due to tourist spending.
Similarly, sales at rival luxury group Kering - whose brands include Gucci, Christopher Kane and Stella McCartney -were up 2.5% in the first half of 2013 in western Europe, which remains its largest market and accounts for 31% of revenue, compared with 26% in the Asia-Pacific region, although sales there grew 3.4% in the same period.
French luxury brand house LVMH, which owns Louis Vuitton, Marc Jacobs and Thomas Pink, reported a sales rise of 6% to €13.7bn (£11.5bn) in the first half of 2013. It said sales in Europe had been “resilient”, while Chinese customers of Louis Vuitton were snapping the brand up in Europe and overseas, rather than in China.
Honor Westnedge, analyst at Verdict Research, says: “Despite weakness across the eurozone in countries such as Greece, Ireland, Spain and Italy, luxury houses have still achieved sales growth in the European region over the past few years, finding it to be a fairly stable market. We expect this to continue over the next five years.
“It is the strong influx of international visitors that has buoyed the luxury market in the region. The fragility of the British pound appealed to overseas shoppers visiting the country, encouraging spend on luxury goods, with visits and spend from citizens of China, Russia, Brazil, Singapore, Nigeria and Thailand growing.”
However, in the UK it is not just London’s prime sites on Bond Street, Oxford Street or Regent Street that benefit.
Sheila King, leasing director, new business for retail landlord Hammerson, says there is an overspill into the surrounding streets in terms of demand: “Property costs are high in London, so it is spreading out. There are lots of new luxury shopping destinations popping up as a result.”
Secondary sites in the capital such as Mount Street, Brompton Cross, St James’s, Dover Street, Albemarle Street and South Molton Street have seen a rise in demand for units. Last year, Céline and Oscar de la Renta opened stores on Mount Street, and Temperley London opened on Bruton Street.
Mats Klingberg opened his menswear store Trunk Clothiers on Chiltern Street in 2010. “I wanted to be somewhere central that was in one of the main retail destinations. Cost was a big factor too. It wouldn’t have gone so well if rents were what they are in other parts of London,” he says.
It’s not all about London though, as the key regional cities are also high on the agenda for luxury brands.
King says the most important thing is to find the right location. Hammerson last year acquired the Victoria Quarter in Leeds, which is anchored by Harvey Nichols, and is developing the city’s Victoria Gate scheme. According to King, units in the city are in demand among high-end brands.
She says: “Leeds lost its way but it is now coming back and we’re looking at putting premium and luxury brands all under one roof.
I think that in the UK, with the bigger regional centres and cities, you have much more of an opportunity to manage the environment. We’re really focused on making sure we get the experience right, the environment right, the parking right. It’s all important.
“In London individual landlords are focused on rents and aren’t concerned about the whole shopping environment.
Whereas in a managed environment you have much more control of your tenant mix.”
Scottish scarf brand Begg & Co is stocked by independents such as Trunk and Jane Davidson in Edinburgh - a city which is experiencing increased interest from luxury brands, according to Begg & Co’s sales and marketing director, Ann Ryley: “If you look at Edinburgh it is the same, with Harvey Nichols and the growth of George Street and Multrees Walk. Brands like Louis Vuitton and Mulberry have clustered around there and it has brought the whole area up.”
Outside London, retail units tend to be smaller, and King says the requirements of luxury brands and retailers differ.
“In London, brands want to showcase [their ranges], especially luxury ones such as Burberry or Watches of Switzerland, which took 17,000 sq ft in Regent Street, for example. They tend to want the larger stores. But when you go out to the regions or to the bigger cities luxury brands want to showcase more accessories, cosmetics, and smaller products. That’s what we’re finding with Victoria Quarter [in Leeds] because the units are 500 sq ft.”
Christopher Di Pietro, marketing and merchandising director for Vivienne Westwood - which in addition to the Victoria Quarter has shops in Manchester, Liverpool, Glasgow, Newcastle, Nottingham and Cardiff - agrees: “Outside London we very much have to focus on the product, because you don’t have the big properties.”
He says the large luxury groups buying up properties in central London are squeezing out the smaller players from the hottest locations.
For King, the appeal of setting up shop outside London is clear: “It is very difficult to get into central London. It can become very expensive very quickly. And that is why I think there is an opportunity for them to go to other cities in the UK. So it’s just looking at lots of locations and maybe testing them with pop-ups.”
However, Adam Fenwick, group managing director of department store business Fenwick, warns trading is tougher outside the capital.
“We have 11 stores around the country and there is a significant difference in commercial performance between what is happening in London - a city state almost - and what is happening in the rest of the UK. We’ve got a big business in Newcastle, we’re in places like York, and the economic realities in some of those markets are very different. The central London market is supported by tourist money.”
Looking further afield, Westnedge says while mature markets such as the UK, France and Germany will continue to account for a sizeable proportion of luxury spend in the European region, future opportunities will be driven by growth markets in central and eastern Europe, such as Poland and the Ukraine: “Poland’s stable economy, growing tourism industry and increasing adoption of the latest trends create an attractive destination for luxury retailers to target - especially since the current luxury market is relatively small compared with the size of the country and the population.
So brands should react fairly quickly and get a foothold in the market ahead of competitors.
“Russia is forecast to be one of the key driving forces behind stronger growth in Europe in the coming five years.
While Russia has a fairly mature luxury market, there is solid growth potential providing it can convince its domestic luxury shoppers to spend at home rather than overseas.”
So while Asian expansion will undoubtedly remain key for luxury brands and retailers, it looks certain that those same businesses will also focus their efforts on opportunities closer to home.