China dominates global luxury retail openings: Savills

As economic uncertainties cloud China’s luxury market, its critical role in the global luxury retail sector remains intact. According to Savills’ latest Global Luxury Retail report, China accounted for 41% of global luxury store openings in 2023, a slight decline from the previous year. This decrease reflects broader economic challenges, including reduced consumer confidence and a cooling domestic economy. Nevertheless, China’s market fundamentals still offer significant opportunities for luxury brands willing to navigate the current headwinds. The country’s luxury market is grappling with multiple economic issues. Falling residential property prices, rising unemployment rates, and overall economic volatility have led to a decline in consumer confidence. This trend was evident in luxury sales during the recent Chinese New Year, which fell short of expectations, highlighting cautious spending among all but the wealthiest consumers. Despite these challenges, the wider Asia-Pacific region, excluding China, has shown resilience. Savills’ report notes a 31% YoY increase in luxury store openings across the region, which accounted for 17% of global openings in 2023. Tokyo and Singapore were significant contributors, driven by increased tourist spending, a weaker yen, and relaxed visa restrictions for mainland Chinese tourists. Resort markets and inland China Resort markets have remained attractive for luxury brands. Hainan Island, China’s duty-free haven, continues to be a crucial destination, underscoring the importance of Chinese luxury consumers despite domestic spending slowing. Globally, resort markets saw a stable rate of new store openings, with Europe accounting for 26%. This trend highlights the strategy of luxury brands to align closely with their customers’ lifestyles and travel habits. Several Chinese cities present promising opportunities for luxury brand expansion. The report highlights Shenzhen, Wuhan, and Hangzhou as potential growth markets. By 2028, these cities are expected to match or exceed the affluence of major Japanese cities like Osaka and Kyoto, but currently have relatively low luxury brand penetration. This gap represents substantial growth potential for luxury retailers willing to invest in these emerging markets. Mixed global picture New store openings in North America increased by 12% YoY in 2023. New York led the region with the highest number of new openings, followed by Los Angeles and affluent cities such as Atlanta, Dallas, and Chicago. Expansion is attributed to a continued focus on affluent domestic cities and the recovery of international tourism. Meanwhile, Europe saw a 17% YoY decline in new store openings in 2023. This dip is attributed to limited availability in key luxury destinations rather than reduced demand. Cities like Paris and London remain luxury hubs, with demand high for prime retail spaces. In the Middle East, Dubai and Saudi Arabia are becoming increasingly attractive for luxury brands. Dubai saw an influx of 4,500 new high-net-worth individuals in 2023, contributing to a robust luxury market. Despite availability constraints, luxury retail activity remains strong, highlighting the region’s potential for future growth. Strategic real estate shifts Luxury brands are adapting their strategies to the evolving market dynamics. There is a noticeable shift towards upsizing existing stores and creating exclusive lounges for Very Important Customers (VICs). This trend is evident in locations like Canton Road in Hong Kong and Marina Bay Sands in Singapore, where brands invested in larger, more visually striking retail spaces. Property acquisitions by luxury groups reached over $6.5 billion in 2023, indicating that physical real estate remains a critical battleground. Prime rents have increased in key luxury destinations such as Toronto’s Bloor Street and New York’s Madison Avenue, driven by reduced availability and improving occupier demand.

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China dominates global luxury retail openings: Savills