Australia offers significant opportunities for luxury retailers at a time when the Asian market is reaching saturation point, according to a new reports from CBRE, The Future of Luxury Retail in Asia Pacific: New Demand Drivers and Shifting Occupier Requirements.
Most major luxury retailers are now well established in Asia Pacific, with China and Hong Kong being two of the most penetrated markets at 89 percent and 81 percent, respectively, however, following several years of rapid expansion, these markets are approaching saturation point and several luxury brands have halted expansion amid sluggish sales.
Conversely, the penetration rate of luxury retail in Australia is just 50 percent – primarily due to the dominance of department stores in this segment of the market.
The tide is shifting though, as luxury brands launch standalone stores in Australia to exert stronger control over their business operations and brand.
In 2014, a total of 16 luxury retailers entered Australia or opened their first standalone store in five cities, double the total in 2012 and 2013 combined.
“Australia, unlike much of Asia, is far from saturation point in terms of luxury retailing,” said Tim Starling, CBRE Head of Retail Tenant Representation Australia.
“At present we are witnessing the largest influx of new luxury brands in the country’s history. This is coming from two distinct sectors, with fashion/ready to wear and jewellery retailers being the most inquisitive.”
Mr Starling said the inquiry is being driven by larger groups such as LVMH, Kering Group and Richemont, however, brands such as Valentino and Moncler also have Australia on the radar.
“Another trend we are witnessing involves brands being more willing to seek space in shopping centre environments,” Mr Staring said.
“This was previously a no no for many of the new brands looking to enter the market, but new development activity is giving landlords the ability to create successful luxury quarters, with Chadstone in Melbourne being the best example of this in Australia.”
CBRE National Director, Retail Services, Alistair Palmer, said that a new luxury precinct is also poised to open at Pacific Fair on the Gold Coast in 2016, while Chadstone is planning to double its luxury offer.
An increase in Chinese tourist arrivals is helping to support the luxury retail sector in Australia, Mr Palmer says, particularly in light of the fall in the Australian dollar.
“Sydney Airport is also establishing a new luxury precinct, with many of the tier 1 and affordable luxury brands opening in order to capture the Asian tourist market,” Mr Palmer said.
Tier 1 luxury brands have been most active in Melbourne, with the likes of Dior, Gucci, Longchamp, Hermes, and Cartier securing positions at the Paris end of Collins St.
At an Asia Pacific level, the CBRE report highlights that over saturation, surging operational costs and weaker retail sales, especially in Hong Kong, due to the slowing mainland China economy has prompted retailers to consolidate existing store networks and slow their rate of entry into new markets focusing on operational efficiency.
CBRE has identified three emerging trends which will partially offset some of the negative effects arising from the slowdown and compensate for the loss of demand:
Emergence of affordable luxury
Often referred to as bridge brands, affordable luxury retailers, for example Michael Kors, provide high quality branded goods at a lower price tag than top tier luxury retailers. Several top tier luxury brands are already so well established in the region that they are at risk of overexposure, a trend which is prompting many consumers to look for differentiation. Mr Palmer said affordable luxury brands are increasingly targeting Australia, including the likes of Kate Spade, Michael Korrs, Coach, Furla, and with Tory Burch expected to open in Australia in the not too distant future
Inclusion of food and beverage
Recent years have seen luxury brands begin to expand beyond their core fashion businesses into the food and beverage (F&B) sector. Examples include 1921Gucci in Shanghai iAPM and Cafe Dior by Pierre Hermé on the top floor of Christian Dior’s flagship store in Seoul, transitioning their brands from being totally fashion oriented to more lifestyle driven. Including an F&B component in stores enables luxury retailers to provide their consumers with a more complete experience in which they can shop, relax and socialise.
Growth of luxury childrenswear
As of 2014, Asia Pacific was home to 807 million people aged under 14, representing more than 20 percent of the total population and offering an enormous opportunity for growth. The emergence of luxury childrenswear brands has been welcomed by landlords, as many of them are looking to expand their offering into toys, bookstores and playrooms in order to attract and retain foot traffic amid competition from online retail.