Luxury giants flex their muscle to lock down prime window space

Luxury giants flex their muscle to lock down prime window space
Wednesday, March 19, 2014 – 20:43
PARIS – French luxury group LVMH is trying to push out smaller rivals from plush Place Vendome in Paris after buying one of its highest-profile buildings, illustrating the intensifying battle for Europe’s prime retail locations.

Cash-rich groups such as LVMH, Richemont and Hermes have been stepping up property investment in key fashion capitals, buying entire buildings to lock in premium sites for which prices and rents are rising fast.
LVMH, owner of jewellers Fred and Chaumet and fashion label Louis Vuitton, had 3.2 billion euros (S$5.63 billion) of cash on its balance sheet at the end of last year and Cartier owner Richemont had 2.4 billion euros of disposable cash at March 31.
In the face of that kind of firepower, prime window space in the likes of Paris, London and Milan could be pushed beyond the means of smaller brands such as Buccellati, the family-run Italian jeweller favoured by aristocrats and Hollywood stars.
Buccellati says it has been asked by LVMH to vacate No.4 Place Vendome by the end of June, three years before the end of its lease. “This is our most important shop window,” said Buccellati Chief Executive Thierry Andretta, adding that it had been renting the building, one of the most visible on the elegant 18th-century square, since 1979. “We will fight to stay,” he said, adding that lawyers had been retained.
LVMH acquired the building for more than 200 million euros in 2011, based on market estimates, and says it is exercising its right to give notice if it is to refurbish the property.”LVMH has until May to ask for a construction permit,” a company spokeswoman said.
The group has already removed a small fashion boutique and antique jewellery shop from the building in the past year and has also asked Italian jeweller Damiani to leave when its lease runs out in 2016. “LVMH is asking us to leave, but we would like to stay as this shop is very strategic for us in terms of image and sales,”said Mario Gilardini, Damiani’s head of worldwide sales.
Damiani, Buccellati, Richard Mille and other tenants have already lost a degree of brand visibility on Place Vendome, their signage eclipsed by the huge advertisement for J’adore perfume – made by LVMH’s Dior – now emblazoned across the building’s scaffolding.
It is difficult to quantify returns on such properties because the investments are also aimed at preserving and nurturing a luxury brand’s image, but they make an undeniably significant contribution to overall sales.
LVMH does not release figures for individual outlets, but Exane BNP Paribas analyst Luca Solca estimates that its Louis Vuitton store on the Champs Elysees has sales in line with a hypermarket, at 250-300 million euros a year, while other analysts say it could contribute 13-15 per cent of the brand’s total sales in France.
But sales are only part of the equation. Real estate experts say that average rental values in the likes of Place Vendome in Paris, Bond Street and Knightsbridge in London and Via Montenapoleone in Milan have doubled in five years to between 12,000 and 15,000 euros per square metre.

“Considering how much cash big luxury groups have on their balance sheet and interest rates being so low, it makes sense for them to buy key locations in established markets when specific opportunities arise,” said Bernstein luxury goods analyst Mario Ortelli.
LVMH, which also spent about 300 million pounds ($499 million) in 2012 to buy several properties in London’s New Bond Street, is by no means the only big luxury group on the lookout for property deals. Richemont spent $380 million in 2012 to buy the St Regis hotel on New York’s Fifth Avenue.
Both Richemont and LVMH have created specialist business units to make high street acquisitions. LVMH declined to comment on its real-estate strategy, but a Richemont spokesman said that the Swiss group does not intend to ask the New York property’s existing tenants to leave.
Hermes, meanwhile, bought its Beverly Hills store for $75 million last year, having beaten Chanel to a 75 million pound deal for the New Bond Street store of British jeweller Asprey in 2009.
Even Prada, which mostly leases its property, is getting in on the act, buying several buildings on Old Bond Street for more than 130 million pounds last year.
The smaller players are also in danger of being squeezed out of the leasehold market for prime window space. Prada recently fought off competition for stores in Geneva, Zurich and Milan by offering advance cash payments of 20 million euros or more, according to a real estate adviser with first-hand knowledge of the matter. “Prada is confusing the market with its big cheques,” the adviser told Reuters.
Such muscle-flexing has leaves smaller luxury brands struggling to secure suitably prestigious premises.
Longchamp, one of the fastest-growing French handbag makers, acknowledges that finding good locations has become a challenge. “Demand has become increasingly concentrated in certain key areas, which means that opportunities are rare. And when they become available, they go to the highest bidder,” Chief Executive Jean Cassegrain said.
The big question for all involved is whether the bull market for prime retail locations could overheat. “There are signs of a bubble right now in the European market,” said Marc-Christian Riebe, chief executive of retail property consultant The Location Group. “If the Chinese stopped buying watches and jewellery in Paris and Lucerne, I think jewellers and watchmakers would have to renegotiate their lease contracts.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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