The luxury goods industry is undergoing a significant transformation in the scale of retail, according to a study conducted by Bernstein for the Italian luxury association Altagamma. The number of luxury shops worldwide has remained relatively stable since the pandemic, but their size and layout have experienced notable changes.
The study reveals that the global network of luxury shops has only increased by 0.5% over the past four years since the Covid-19 crisis. However, certain regions, including Asia-Pacific, Europe, and the Middle East, have seen some growth in luxury retail. Additionally, the North American market has witnessed the emergence of new destinations like Saint-Louis, Detroit, and Austin, attracting luxury brands that were previously focused on other areas.
Luxury retail is heavily concentrated in 25 cities globally, including Tokyo, Seoul, Paris, Hong Kong, New York, London, Shanghai, Beijing, Osaka, and Taipei. Paris has especially seen major investments in luxury retail, with Christian Dior’s flagship store on avenue Montaigne serving as a prime example. The store underwent significant renovations and expansion in 2022, transforming it into a multi-faceted space that goes beyond traditional retail. It now includes a café, restaurant, gardens, museum, and a suite for affluent customers.
The focus of luxury retail has shifted from showcasing luxurious materials to creating unique and impactful spaces that align closely with the brand’s identity. These spaces aim to provide unforgettable experiences and incorporate elements that are both Instagrammable and distinctive. The objective is to make these stores destinations in themselves, similar to popular tourist sites in cities like Paris.
These new types of stores, often referred to as “megastores,” require substantial investments. However, major luxury groups find these costs manageable, as these stores have proven to be highly profitable. They generate sales in the hundreds of millions of euros with impressive profit margins. Furthermore, they have evolved beyond their role as retail spaces and brand image-boosters, becoming attractions in their own right.
To enhance the appeal of these stores further, luxury brands have implemented various initiatives such as collaborations, pop-ups, events, artistic interventions, catering, exhibitions, VIP lounges, and fashion shows. These strategies have allowed luxury brands to increase their sales per square meter, a crucial indicator of profitability. These initiatives provide a significant advantage to major luxury houses and create a barrier for smaller brands that lack the same scale and resources.
The trend of gigantism in luxury retail persists, particularly in China’s major new shopping centers. Brands are now expected to have a minimum of four floors in these developments, compared to two floors being considered a success two to four years ago. As a result, some labels have been forced to exit these large complexes due to space limitations or unavailability of prime locations.
While smaller luxury companies may struggle to compete with industry giants on the same scale, they can still leverage other factors such as creativity. It is crucial for these companies to find less expensive locations and differentiate themselves through originality and inventiveness rather than attempting to imitate the strategies employed by larger brands.
In conclusion, the luxury retail landscape continues to evolve, with larger and more extravagant stores dominating the market. While this poses challenges for smaller brands, they can still establish their niche by focusing on creativity and finding unique ways to engage customers. Ultimately, the size of retail has become a fundamental asset in the luxury goods industry.
Links:
1. Business of Fashion – COVID-19’s Unexpected Impacts on Luxury Retail
2. Vogue Business – The Retail Store is Becoming an Experience, Not a Point of Sale
