London outperformed its global counterparts in attracting new luxury store openings last year, but can the UK capital retain its place as the jewel in the crown in the face of ever-increasing rents and rates?
“London has always represented the cutting edge in fashion, music and culture and to have my brand present in this grand city is a dream and an honour,” gushed German luxury designer Philipp Plein as he opened his first British outpost, a dazzling four-floor flagship on New Bond Street, at the end of last year. “I am so proud to open this important flagship in one of the world’s most luxurious and cosmopolitan cities.”
Plein is not alone. New York-based luxury brand Thom Browne is set to open its first UK store on Mayfair’s Albemarle Street this spring, while new womenswear brand Varana, launched by former Joseph boss Marc Forestier, is debuting in nearby Dover Street next month.
Property agency Savills says London welcomed 41 new luxury store openings last year, compared with 36 in Paris and 31 in New York, and the stage is set for its long-term opportunity to continue.
The city is currently riding a spending boom helped by drop in the value of sterling since the UK voted to leave the European Union in June last year, but there are concerns that the rising costs of doing business here could mean there are clouds on the horizon.
The importance of visitor spend
Statistics currently point to a healthy long-term future. Around a third of luxury retail spend takes place outside of the customer’s home country, report Exane BNP Paribas and ContactLab, and although London slipped behind Bangkok last year as the most-visited city in the world in Mastercard’s seventh annual Global Destinations Cities Index, it remains a key destination for luxury consumers.
A report from property services firm CBRE and luxury association Walpole shows that London welcomes nearly 20 million visitors a year. The spend $19.8bn (£16bn), of which 46.7% is spent on shopping. There are 16,100 ultra-high net worth individuals – those with investable assets of more than $30m – living within two hours of the city, compared with New York’s 8,300 and Hong Kong’s 8,200, and London was ranked as the number one most important city to this prime group of luxury spenders last year.
“London is performing very well at the moment,” explains George McNeil, managing director of retail at luxury cashmere brand Johnstons of Elgin, which has a store on New Bond Street. “We have seen a significant uplift in performance from around October last year and this has not stopped,” he adds, pointing to a particular increase in purchasing by Asian shoppers.
McNeil believes London’s strength is that it provides a luxury shopping experience in a relatively small footprint of travel compared with its international counterparts.
Helen Brocklebank, chief executive of Walpole, affirms the capital’s status: “London’s mix of world-renowned auction houses and art galleries layered on top of this extraordinary luxury shopping offer are a huge part of its attraction. Added to this, the capital benefits from a favourable exchange rate and perception that London is safer than some of its European counterparts.”
“It offers the complete package to both the business and leisure traveller as well as the home customer with a vibrancy that reflects the diverse and cosmopolitan flavour of the city itself,” adds Ahlya Fateh, managing director of Amanda Wakeley, which has a store on Albemarle Street.
A little too popular?
But London’s popularity and appeal is almost a double-edged sword, cautions Richard Scott, director at property agency Nash Bond: “The increase in rent is a function of the attractiveness of the capital while the significant increase in rates – 300% in some London luxury streets – will impact emerging luxury and aspirational brands that are not able to afford the incredible tax costs together with the rent and trade a sustainable business.
“We are in effect killing the golden goose of inward investment into London from overseas.”
“London will always hold appeal for luxury retailers” Paul Lorraine, Longchamp
”I believe London will always hold appeal for luxury retailers. However, the rising rents and rates will obviously impact the level of risk or retail footprint a brand will take,” said Paul Lorraine, UK general manager of Longchamp, which has a store in New Bond Street.
James Ebel, director at property adviser Harper Dennis Hobbs, agrees: “Increasing rates in particular is a major worry for us and I think will mean some retailers do put expansion into London on hold. I often see US retailers deciding not to enter our market due to the occupancy costs.”
But Scott says London still remains the number one location for luxury brands in Europe and globally, while Ebel believes the city will continue to sustain demand and will always be a destination for retailers looking for stores.
One way some retailers are bypassing rising rents is by snapping up freeholds as they become available.
“This has been a trend on Bond Street, but rare elsewhere,” says Scott. “There are family-owned luxury businesses that invest in many assets – it makes sense to invest in Bond Street real estate, especially if you are able to buy your own building and protect against future rent rises.”
He also points out that it is possible to buy other buildings and effectively hedge against rent rises on the building you lease. For example, Chanel does not own any of its stores on Bond Street, but does own the unit occupied by DKNY on Old Bond Street, he explains.
“This is not exclusive to luxury,” says Ebel. “Take H&M and its ownership on Regent Street or Inditex on Oxford Street.”
Another trend is for retailers to look to locations outside of the traditional areas surrounding Bond Street, Sloane Street and Mount Street to up-and-coming areas such as Shoreditch and popular tourist locations like Covent Garden for opportunities. But Scott believes these areas still are more focused on aspirational and premium brands rather than pure luxury, which remains centred around Mayfair.
“With its unique blend of culture, heritage and unrivalled luxury shopping districts, London’s luxury retail property market is both incredibly attractive and competitive,” confirms Brocklebank.
“Despite continued uncertainty in the broader economy, rental values across shopping destinations such as Bond Street, Sloane Street and Mount Street, continue to increase rapidly. That is a trend that is seeing no slowdown.”
From the streets
Jace Tyrrell is chief executive of New West End Company, which represents businesses trading from 25 streets within London’s retail heartland including Bond Street, Oxford Street and Regent Street.
London is a world-class city when it comes to shopping. Our top-quality, luxury fashion heritage combined with our unique British culture is the reason people travel from all over the world to visit.
The capital’s luxury quarter offers a unique shopping experience; visitors can shop for renowned British luxury brands while stopping by world-class art galleries and dine in top restaurants – all in one area.
In 2016, total [non-EU] International tax free shopping spend was up 22% in London’s luxury quarter, year-on-year. In January alone, [non-EU] international tax free shopping spend was up 38% on January last year.
Mount Street is now the epitome of luxury shopping with its street public realm makeover by Grosvenor, and artistic Tadao Ando water feature outside the Connaught hotel.
St James’ Market, by The Crown Estate, is also noteworthy for its benches designed as public art, beautiful paving and pavilions.
London’s luxury quarter has an appeal built over many generations that will last well beyond the favourable exchange rates attracting increased visitors at this moment.