For Yun Fan Yang and Leila Goncalves, nothing beats London when it comes to shopping.
Both women, who hail from China and Brazil respectively, frequently travel to the British capital city for a spot of retail therapy. Recently interviewed by the Evening Standard in central London’s shopping districts, they named Burberry, Harrods and Smythson as some of their favourite stores.
Yang and Goncalves are among the increasing number of tourists from growth economies who are flocking to major European cities and keeping the luxury goods industry buoyant, even as residents of recession-hit Britain and Europe live in austerity. They are known as “travelling luxury consumers”, or TLC, a term coined by Burberry CEO Angela Ahrendts to describe the label’s key customer group, who are likely to spend six times more abroad than
when shopping at home.
These high-spending shoppers with their insatiable appetite for luxury branded goods are not just responsible for the strong growth of labels such as Burberry and must-have handbag brand Mulberry. Their strong consumer demand is also further intensifying competition for prime luxury retail space in major cities and causing rents to skyrocket.
In London, Bond Street’s rental rates are now five times more than at nearby Oxford Street, as last month saw two record-breaking deals. Luxury shoemaker Salvatore Ferragamo shattered the top UK retail rental record when it renewed its lease at Old Bond Street for a Zone A rent of £1,000 ($1,984) psf; the previous record of £956 psf was set by jeweller Piaget in December 2009. Farther up at New Bond Street, British biker gear label Belstaff has just signed a deal for a new 25,000 sq ft six-storey mega-store, paying the highest Bond Street rent for a new open-market letting at £3 million over a 20- year lease.
Strong demand from luxury retailers, coupled with an acute lack of space at the much-sought-after shopping location means that Bond Street rents could hit £1,500 psf by 2013, property consultancy Cushman & Wakefield said recently. Property brokers also foresee an increase in property purchases in the area, as many of the top fashion houses are eager to safeguard against increasingly exorbitant rents and secure the best sites as they face off their competitors in the battle for the lucrative TLC market.
In January, luxury goods group LVMH reportedly shelled out £300 million for three Bond Street shops, including one housing its Louis Vuitton flagship store, in a deal comple ted within just 10 days. Owned by troubled Irish developer David Daly, the shops were said to be in danger of being seized by Ireland’s National Asset Management Agency, and LVMH was anxious to avoid the possibility of their being sold through auction to its rivals, Reuters reports. According to property consultant CBRE, retailers paid more than £250 million and accounted for 75% of property deals on Bond Street in 2010.
Meanwhile, high-end retailers are going all out in their efforts to capitalise on the strong foreign demand for their goods, rolling out expansion plans even as their more affordable counterparts are struggling on the High Street. Burberry, which saw a 30% revenue growth in the first six months of its current financial year, is investing £20 million to upgrade its flagship store in Regent Street as well as extend its Knightsbridge store, in time for the huge influx of tourists expected for this summer’s London 2012 Olympics.
Retail landlords are also investing heavily to cater to high-end shoppers. The Grosvenor Group, which owns a large part of Mayfair and Belgravia, is spending £10 million to revamp public areas to facilitate easier parking for chauffeur-driven cars, while Regent Street owner (and the Queen’s property manager) Crown Estate has embarked on a £1 billion makeover of the popular shopping street in an attempt to lure large international retailers, Reuters reports.
Intent on courting the “Peking Pound”, upscale department stores are accepting the Chinese debit card UnionPay and hiring Mandarin- speaking staff as well as training them in Chinese customs such as giving and receiving items with both hands. A reported 110,000 shoppers from China visited the UK last year, and these numbers are expected to double by 2015, the Evening Standard reports.
If only they could be persuaded to divert their much-needed spending to the struggling High Streets of Britain, which have been hardhit by consumers’ belt-tightening measures. According to property agency Colliers International, the rental disparity between Bond Street’s sky-high rents and the worst-hit parts of the UK, where shop rentals go for as low as £25 psf, is the greatest since 1987.
Still, there is hope that this TLC “growth” sector will extend beyond Mayfair. The intense competition for retail space in Central London has seen several luxury brands looking east towards areas such as Shoreditch, a former industrial area since transformed into an edgy location popular with media industries and tech start-ups. With top-end labels such as Christian Louboutin, Ralph Lauren, Vivienne Westwood and Prada reportedly seeking suitable sites in the area, Shoreditch looks set to become a “mini Bond Street”. And with current rents ranging from £100 to £500 psf, it’s an affordable far cry from the original Bond Street.
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