The in-store experience for luxury brands is increasingly important as retailers both compete with and seek to bolster e-commerce sales.
E-commerce's share of total retail sales remains below the pandemic high of 16.4% although it crept up to 16% during the second quarter this year, according to JLL's latest luxury report. With 80% of retail sales still occurring in physical stores, luxury brands continue to rely on their physical presence as a direct point of contact with consumers.
Because of this, a scarcity of desirable retail space has continued to impact the growth of luxury retail stores across the country, and luxury brands are focusing on reinvesting in their existing flagships to provide high levels of customer service and personalized in-store experiences.
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Luxury brands also are expanding existing stores with an eye toward providing unique in-store experiences, said JLL. The report pointed to Gucci, Louis Vuitton and Chanel as examples of brands that have expanded existing mall locations in major US markets.
Malls provide prime opportunities to expand, unlike prime corridors, because retailers can relocate within the mall or renovate their existing stores, the report said. At Costa Mesa's South Coast Plaza, Gucci doubled its floor space across two floors with a recently expanded 17,500-square-foot boutique, for example.
Meanwhile, demand is shifting to new corridors in New York and Chicago as luxury seeks proximity, the report said. In New York City, the resurgence of the affluent Upper East Side shopper and the availability of ample space along Madison Avenue has sparked a new wave of openings from luxury brands, JLL said in its report. In Chicago, luxury brands are attracted to the Gold Coast thanks to the neighborhood's affluent residential base, strong luxury co-tenancy and smaller store formats.
Several luxury brands have been on a real estate buying spree lately, the report said. Prada Group and Kering purchased prime real estate along Fifth Avenue, with Kering paying nearly $1 billion for a 115,000-square-foot multilevel luxury retail space and Prada Group acquiring a pair of adjacent office buildings – one of which houses its Fifth Avenue flagship – for a total of $835 million.
"These acquisitions mark a shift in strategy by some luxury conglomerates that have chosen to own property in the most desirable prime corridors, paying an expensive premium in the process," said JLL. "These acquisitions can be seen as long-term investments by luxury brands who expect to be around for a long time in select major markets, while also reaping the benefits of owning properties in prime locations, such as insulation from rising rents."
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
