For the first time, designer brands opened more shops in markets like China and Japan than in Europe.
By guest author Carol Ryan from Wall Street Journal
Even after the pandemic has passed in Europe and the U.S., luxury brands expect to do a lot more business in Asia. Their next job is to reduce the burden of emptier shops in cities like Paris and Milan.
From January through October this year, designer labels opened more boutiques in Asia than any other region, according to data from Savills. It is the first time that Europe, normally the most popular location for new stores, has been outpaced in the real-estate firm’s records. North America’s share of global openings halved compared with 2019 levels.
Much of the activity happened in mainland China, where demand for luxury goods has recovered rapidly after lockdowns early in the year. Of all the stores opened around the world so far in 2020, 19% were in Chinese cities such as Shanghai and Shenzhen—far higher than their 6% average share of global openings over the past three years.
The trend has been exaggerated by the coronavirus, which has emptied Western cities of tourists, but is expected to outlive it. Even after long-haul travel returns to normal, Chinese consumers—by far the industry’s biggest spenders—will likely shop more at home.
Before the crisis, they made 70 % of their luxury purchases overseas, mainly in European cities like London and Paris. But the Chinese government looks determined to keep that money at home. This summer, Beijing tripled consumers’ duty-free allowance and opened domestic duty-free stores where the quota can be spent up to six months after a trip.
Luxury brands are signing leases of up to eight years in China, more than double the average length in Asia. That reflects the conviction that the local-spending trend will stick, as well as intense competition between labels for the choicest locations.
Next, companies need to reduce the cost of their stores in regions where sales are weak. Some closures are likely. Christian Dior’s owner LVMH Moët Hennessy Louis Vuitton had 35 % of its shops in Europe last year, where boutiques depend on tourists for two-fifths of turnover, according to estimates by Jefferies.
Rent cuts are another option. Lackluster demand on Europe’s and America’s most exclusive shopping streets gives brands leverage over landlords. On Rue Saint-Honoré in Paris, just eight new boutiques are expected to open in 2020, according to Knight Frank, a drop of one-third compared with last year’s numbers. And on Upper Madison Avenue, home to brands like Givenchy and Prada, asking rents for luxury tenants fell 12 % in the third quarter compared with the same period of last year.
Labels may be preoccupied with expanding in China for now. But in a bad sign for landlords in Europe and the U.S., a tidy up in more mature markets can’t be far down brands’ to-do lists.