At first blush, some of the economic indicators driving the global luxury market appear to be mixed. In the U.S., the “Trump Effect” has buoyed equities and private investment (key components that drive high-end spending) as well as the overall outlook on the luxury market. But gross domestic product growth remains stuck at 2 percent.
In Europe, reflation is winning over inflation, according to researchers at Russell Investments who are bullish on equities in the Eurozone — especially following the outcome of the French election. The same analysts see a “slight acceleration” in the Asia-Pacific region economy with Japan and Taiwan offering bright spots. And while the all-important Chinese tourist consumer remains a vital component in the luxury space, new research shows some issues of concern in the U.K. (mainly due to the impact of Brexit).
Overall, there remains a sense of uncertainty for the global economy based on the timing of U.S. policies such as tax reform that could benefit higher-income households once passed, according to analysts at the International Monetary Fund.
Drilling down into the current state of high street retailing reveals pockets of opportunity for luxury brands eyeing the Middle East, parts of Asia and Europe as well as the U.S., according to industry sources. And one of the most important trends from a consumer behavior perspective is the emergence of a new breed of luxury consumer who is defined “by their sensibility and affinity for exclusive brands,” observed Kevin Thompson, chief marketing officer at Sotheby’s International Realty Affiliates LLC.
In a sector report, Sotheby’s identifies these emerging luxury consumers as those with investable assets of between $250,000 and $1 million — “they are on the cusp of attaining traditional wealth status,” authors of the report noted adding that these consumers have a high level of confidence in regard to affording “all the things they need as well as most of the things they want.”
When it comes to how this consumer cohort spends their money and the brands they gravitate toward, the researchers said top monikers include: Gucci and Chanel in handbags; Rolex, Omega and Cartier in watches, and BMW and Audi in vehicles. They also dine out frequently (4.8 times per week) and travel internationally for leisure (5.6 times per year).
With their luxury home purchases, top preferences include locations that are on a waterfront; in an urban area; historic, and eco-friendly. In its report, Sotheby’s said trending areas include Australia and Malibu, Calif. They also said New Hampshire has emerged as a waterfront location with the highest year-over-year real estate search increase. With urban markets, Boston, Tokyo and Vancouver are top destinations. New York remains attractive, and on a neighborhood level, SoHo and the Upper East Side are favorites in the city.
Regarding luxury retail real estate in the U.S., researchers at JLL said New York has the strongest current demand in the sector as well as increasing projected demand. Other markets in a similar position include Miami, Los Angeles and Honolulu as well as San Francisco, Chicago, Las Vegas, Washington, D.C., and Boston, among others.
Analysts at JLL said in their High Street Retail Report that the top retail streets in New York include Fifth Avenue (between 48th and 59th Streets); Times Square; SoHo; Madison Avenue (between 59th to 72nd Streets), and 34th Street/Herald Square. In Los Angeles, Rodeo Drive in Beverly Hills, the Third Street Promenade in Santa Monica and Robertson Boulevard were among the top for luxury retail. In Miami, top luxury retail streets include Lincoln Road, Collins Avenue and Washington Avenue, according to JLL.
Looking at higher-end shopping centers and malls, a recent report from Fung Global Retail and Technology noted that “A” malls have seen double-digit growth over the past six years — especially in markets such as Boston, Atlanta, Houston, Los Angeles, New York and Miami. “The top-performing malls usually are located in or near major urban or tourist areas,” researchers of the report said adding that sales per square foot of the top “A” malls average two to 2.5 times greater than that of the U.S. mall average.
Meanwhile, in China, domestic spending on luxury goods got off to a strong start this year as consumers there seemed to be spending more at home than overseas. And, similar to other consumer demographic cohorts, Chinese consumers are also seeking out experiences over “buying stuff,” analysts said at CBRE.
In a separate research report from Fung Global Retail and Technology, analysts crunched data on Chinese tourist spending in the U.K. and found it declining last year after a nearly 40 percent gain from 2014 to 2015. But the depreciation of the pound following the Brexit has been a boost for Chinese tourists shopping there. Moreover, the analysts said they’re making fewer trips to the store, but are spending more with average basket sizes showing increases.
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