Australia on the radar as luxury retailers reach saturation point in Asia

​Sydney, 4 November 2015 – Australia offers significant opportunities for luxury retailers at a time when the Asian market is reaching saturation point.

This is one of the conclusions from a new CBRE report, 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% and 81%, 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% - primarily due to the dominance of department stores in this segment of the market.

However, the tide is shifting, as luxury brands launch stand-alone 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 stand-alone 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, 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 was being driven by larger groups such as LVMH, Kering Group and Richemont, however brands such as Valentino and Moncler also had 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. However, 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 added that a new luxury precinct was also poised to open Pacific Fair on the Gold Coast in 2016, while Chadstone was planning to double its luxury offer.

An increase in Chinese tourist arrivals was helping to support the luxury retail sector in Australia, Mr Palmer said, particularly in light of the fall in the $AU 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 noted.

Mr Palmer sad tier 1 luxury brands had been most active in Melbourne with the likes of Dior, Gucci, Longchamp, Hermes and Cartier securing positions at the Paris end of Collins Street.

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 -have prompted retailers to consolidate their existing store networks and slow their rate of entry into new markets focusing on operational efficiency.

However, 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 were increasingly targeting Australia, including the likes of Kate Spade, Michael Korrs, Coach, Furla, with Tory Burch expected to open in Australia in the not too distant future

Inclusion of F&B: Recent years have seen luxury brands begin to expand beyond their core fashion businesses into the 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 brand 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.