Recently, French luxury brand Herm è s announced its reasons for hiring a French style “Zhaoxiannashi” in the private sector, with the position of manager of a Taikoo Li store in Sanlitun, Beijing. Although Herm è s is not surrounded by the Sanlitun Taikoo Li Gonghe, its upcoming entry into Building 7 in the North District is already a confidential matter of Gonghe.
The tenant in front of Building 7 in the North District of Taikoo Village in Sanlitun is Canada Goose and the high-end home furnishing store Cabana. The two brands have already moved out in 2023. The former jointly established a new store in the “Red Mansion” in the North District, while the latter withdrew shortly after moving to the basement level. At the same time, Louis Vuitton and Dior were also renovated in the northern district along with Herm è s, both of which rented standalone stores.
The reason why a store is not hired usually indicates that it has entered the pre employment stage. Amidst the cold times in the luxury goods industry, Herm è s still maintains a relatively stable frequency of store closures. In addition to the Taikoo Li store in Sanlitun, Herm è s will also close its new SKP store in Beijing, and it will join the Wuxi branch in early 2024.
High end markets are now more willing to leave their space to top luxury brands such as Herm è s. An obvious trend is that the brand diversity of these markets is increasing.
Shanghai Henglong Plaza will provide more space for top brands such as Dior and Chanel to jointly set up multi-level stores, while smaller brands can only go to the basement or clutch market. In Sanlitun Taikoo Village, a single family store that used to accommodate multiple tenants is now owned by a single brand from the ground up to the present.
In Beijing SKP and Guangzhou Taikoo Hui, where physical fitness is not too large, market operators leave space for top luxury brands to jointly establish private salon style stores, and these stores have a far higher daily customer flow compared to other conventional stores. In the cold luxury market, everything is focused on attracting high net worth individuals.
Compared to second tier brands, today’s top luxury brands are naturally more popular in the market.
In the three years that overseas consumption has driven the rapid growth of the luxury goods market, many second tier luxury brands and smaller designer brands have become the focus of real estate developers. Maison Margiela and Jil Sander, under the OTB group, have merged in key commercial districts including Nanjing West Road in Shanghai and other cities. Belgian designer brand Dries Van Noten has also been added to Shanghai Jing’an Kerry Central, Shenzhen Wanxiang Township, and Chengdu Taikoo Village.
At the moment of market progress, introducing more second tier brands and designer brands can highlight diversity and investment capabilities, making it different from other markets that only have top well-known brands. At such times, the consumer’s mentality is usually more withered and willing to test a smaller style.
But at a time when consumers tend to be cautious, second tier brands and designer brands are the first to be abandoned. In response to market trends, many markets are beginning to pay more attention to these types of brands because they can bring in increased customer flow, exposure, and achievements.
From the financial report, although the growth rate of top luxury brands has not slowed down and narrowed, overall it is still better than that of second tier brands. For example, Ferragamo’s expenses in the first quarter increased by 18% year-on-year, while Moschino’s parent company Aeffe Group increased by 14%, and its net profit decreased by 45%.
Even in unfavorable circumstances, top luxury brands have relatively stronger stability and resilience. This first benefits from their positioning and the resulting forces. The boasting and preservation attributes of top brands have lost their strength in comparison to the significant decline in the deeds of second tier brands, and have a higher attraction to both the affluent and middle class.
The advantages of different top luxury brands also vary.
For example, Louis Vuitton has a strong oligopoly power and is a luxury brand that many people initially recognized, while the highly recognizable Monogram print carries a boastful attribute higher than that of second tier brands. Herm è s is characterized by its higher positioning and the need for consumers to establish stable relationships with their partners in order to engage in specific products, which brings it a more stable customer flow.
But for second tier luxury brands, their achievements are twofold: firstly, limited visibility and influence; secondly, they are too independent of middle class consumers, pushing out high-quality beginner level products, and widely establishing Olay discount stores. When the entire market is cold, such brands are also hit the hardest.
Due to the wider range of luxury brands, they are usually more willing to rent larger cross story stores. For example, Chanel, in addition to its tailoring stores, also subdivides into jewelry stores, beauty and footwear stores. Nowadays, the popularity of salon style stores has made top luxury brands more willing to rent multiple floors within a market.
Whether it’s the stable level of customer flow or the estimated room price, many second tier luxury brands have no choice but to compare. This is also why department markets sometimes prefer to vacate existing second tier brand tenants, leaving no more space for top brands.
Furthermore, due to the higher start-up capability of top luxury brands, they have a longer time signing leases in the market compared to mid-range brands. They have a large rental area and require a lot of decoration, which is not cost-effective and protects abstract ideas. They usually do not easily open their stores.
Moreover, markets with top luxury brands entering are usually able to earn higher room rates from large and mid-range brands that have been attracted and taken away. As long as the top luxury brands remain tenants, a market can hold relatively high attraction to other large and mid-range brands, ultimately leading to higher business stability.
From this, it is also possible to have a premonition that the store space occupied by top luxury brands in key high-end markets such as Shanghai Henglong Plaza will continue to increase. After all, in the cold market, these brands also hope to retain consumers by providing more products and diverse services.
But for second tier brands, the opportunities for them to find a good store in the future will be decreasing. Brands such as Fendi and Celine, which are independent of large groups, may still be able to join Louis Vuitton or Dior on the first floor of the high-end market through joint agreements, while for brands like Ferragamo that are single handedly competitive, they will face more provocations.