Luxury Retailers Double Down on US Expansion, Including Moves Into Smaller Markets
Upscale Brands Are Increasing Their Space in New Corridors of Major Cities
Luxury retailers have dramatically ramped up their expansion in the United States, opening stores in new areas of major cities and establishing a presence in smaller untapped but growing markets, such as Austin, Texas, and Nashville, Tennessee.
A new report by brokerage JLL, “For the Love of Luxury: The Renaissance of Luxury Retail in the United States,” describes the strong rebound in the wake of the peak of the pandemic. That surge is in line with strong leasing demand seen earlier this year by a CoStar analysis.
“With both sales and foot traffic returning to pre-pandemic levels, luxury retailers are focusing their energy and new capital on their bread and butter: physical storefronts,” the JLL report said.
Luxury retailers have adapted following the coronavirus outbreak by debuting stores both inside and outside central districts in big cities and by following Americans who deserted urban hubs to relocate to less densely populated regions of the nation, according to JLL. For example, Ralph Lauren plans to open 250 stores through 2025, citing opportunities in and around cities such as San Francisco, Seattle and Denver. And Chanel has opened 15 new locations in the United States since the onset of the pandemic, in locations including Nashville and Las Vegas.
“The early stages of the pandemic saw many people move out of overcrowded coastal cities in favor of the spacious landscape and temperate climate of the American South, and luxury retailers have shown a clear determination to go where the people are,” the report said.
Before the pandemic, luxury retailers were mainly looking internationally, to countries such as China, for their most explosive growth. But now, because of geopolitical uncertainty, the United States is seen as the place for brick-and-mortar expansion, according to JLL. Luxury retail’s U.S. sales dropped 14.3% in 2020, coming in at $59 billion. But those domestic sales were just over $64 billion last year and are expected “to eclipse pre-pandemic numbers” by the end of this year, the report said.
JLL joins others in citing the strength of the U.S. luxury sector. At a conference this month, Macy’s Inc. Chief Financial Officer Adrian Mitchell said the company’s “luxury customers” for its Bloomingdale’s and Bluemercury chains remain “very resilient.” And Neil Saunders, managing director of GlobalData, in a note on upscale Nordstrom said its shoppers have high incomes and that “gives them the confidence and ability to spend even as prices for essentials rise.”
Americans still remain concerned and affected by high inflation and the specter of a recession. Despite those economic headwinds, JLL and other analysts consider consumer spending for luxury goods to be inflation-resistant, saying upscale retailers view the U.S. economy as more stable and inviting than China, once considered one of the biggest engines driving those sales. And America still has high employment, with workers getting wage increases, Naveen Jaggi, JLL’s president of retail advisory services, told CoStar News.
Meanwhile, the economy in China remains essentially closed because of the ongoing pandemic, according to Jaggi.
“We don’t know what’s going to happen in China,” he said. “We have an open economy here. We have a better idea of what’s going to happen in the U.S.”
U.S retail leasing overall has been strong, according to a recent report by CoStar.
“With sales sitting at record highs, retailers have turned back to expansion mode, albeit selectively,” according to the report. “As such, retail leasing activity has bounced back to near pre-pandemic levels, with slightly more than 250 million square feet of retail space signed for over the past year, which is just below the 264.4 million square feet of leasing activity recorded in 2019. Nearly 58 million square feet of retail space was signed for” in the second quarter this year.
In some cases, luxury retailers are expanding their footprints in traditional commercial corridors, according to JLL.
“When deciding where to open new stores in the United States, it’s no surprise that these retailers first targeted the urban cores where they gained initial prominence,” the JLL report said. “These prime retail corridors, which include areas like the Plaza District in New York City, Rodeo Drive in Los Angeles and the Gold Coast in Chicago, are the premier destinations for tourists and local shoppers alike and are known for their concentration of luxury flagship stores. Versace had this reputation in mind when it chose Madison Avenue, in the heart of the Plaza District, for its new New York City flagship. The Italian legacy brand leased the former Givenchy space at 747 Madison Ave. earlier this year in a seven-year deal and plans to open its doors in time for the holidays.”
In a similar vein, LVMH Moët Hennessy Louis Vuitton, the French luxury goods conglomerate, “opted for the established opulence of Rodeo Drive for its recent openings,” according to JLL’s report.
“The French company is in the process of constructing a new 47,000-square-foot Dior flagship at the site of its demolished former men’s store at 319 N. Rodeo Drive,” JLL said. “The new three-story location will feature a restaurant and multiple private terraces and will be situated not far from LVMH’s recently opened Louis Vuitton men’s store, which is the brand’s largest men’s store in the United States. The 6,500-square-foot outpost also showcases the ‘Giant Man’ sculpture, an art piece conceptualized by the brand’s beloved late creative director, Virgil Abloh.”
CoStar News first reported that Goyard, Cartier and Ksubi, an Australian luxury denim brand,were coming to Chicago’s Gold Coast, debuts cited in JLL’s report.
Move Into Neighborhoods
Luxury retailers in some cases are opting to move into neighborhoods near existing residential populations instead of “office-heavy” central business districts where “tourism [is] still depressed and office occupancies [are] hovering around 44%,” according to JLL’s report.
“In New York, retailers like Givenchy, Hermès and Gucci have chosen to open new stores in SoHo, Williamsburg and the Meatpacking District, respectively, as they remain weary of tourist havens like Times Square and Fifth Avenue,” the report said. “The Magnificent Mile in Chicago has seen vacancy approach 30% due to decreased tourism, and luxury retailers like Goyard and Cartier have been flocking to the Gold Coast instead.”
Chicago’s Gold Coast includes Oak, Rush and Walton streets. It is near the Magnificent Mile, a stretch of North Michigan Avenue that is the city’s best-known shopping street.
In Manhattan, Fifth and Madison avenues used to be the streets where luxury retailers needed to set up shop, according to Jaggi. Now areas like Elizabeth Street in the East Village and SoHo are new luxury destinations.
“What retailers found out is consumers will find you,” Jaggi said. “You don’t have to be the most successful in the prime locations. And actually it works to luxury’s benefit … to be somewhere separate, because they’re actually looking for a very discreet clientele, and that clientele wants to be able to walk into a Louis Vuitton, or into a Tory Burch … or a Canada Goose, and they want to walk in quietly where there is no rush. So you will see more and more luxury retailers trying to go off of the Main Street to a destination, not to an impulse location.”
And with population shifts in response to the pandemic and other factors, luxury retailers are making their way to new markets, including not only Austin but San Antonio, Houston, Atlanta, Nashville and Seattle.
Follow the Money
“Hermès made waves in this regard when it announced it was opening a new store on S. Congress Street in Austin, to complement its existing locations in Dallas and Houston,” according to JLL’s report. “The company, headquartered in Paris, will try its hand at place-making in Austin as the first luxury store on the corridor. Elsewhere in Texas, Gucci is building its first stand-alone retail location in San Antonio, where it will join Carolina Herrera and Louis Vuitton at The Shops at La Cantera.”
These brick-and-mortar expansions make sense, according to Jaggi. Electric-vehicle maker Tesla, for example, relocated its headquarters to Austin from Palo Alto, California.
“We hear a lot about how all the big Silicon Valley companies are establishing their foothold in markets like Nashville and Austin,” Jaggi said. “And that makes perfect good sense. Luxury retail follows money, and if money is going to Nashville or Austin or other markets like that, they will be there as well.”
In the wake of the influx of residents into South Florida with the onset of the pandemic, Ksubi and Chanel both plan to open stores in Miami’s Design District later this year, according to JLL.
“Retail understands you follow where the money is,” Jaggi said.