Luxury retailers raise the stakes in Australia

Gucci, Louis Vuitton and Prada already have a home in Australia. The exciting news is that there are more purveyors of luxe on their way here.

Tiffany & Co. has big plans for Sydney. It intends to double its footprint in the Sydney CBD by opening a new three-storey flagship store at 175 Pitt Street.

It will be one of the largest luxury showcases the city has ever seen.

And it’s just one sign of things to come: Chanel and Hermes also want to increase their presence.

Some of the most powerful retail brands in the world are expressing confidence in the Australian market.

“Maison sizes are growing due to demand, and this move by Tiffany & Co. is giving other luxury retailers the confidence to move into Australia and expand,” Dexus Leasing Manager of City Retail Pamela Medich observes. 

Tourism, population growth underpin the boom

Luxury brands have been eyeing Australia for at least the last five years. Many have already made the move here; others are keen to break in.

Their presence shows up in luxury goods sales data, which grew 11 per cent a year over the five years to 2016-17 to reach $1.8 billion, according to IBISWorld. 

There’s no sign of the trend slowing. To the contrary. IBISWorld is forecasting growth of around 8 per cent a year for the next five to six years.

Currently only 39 out of around 250 global luxury retailers have a presence in Australia, but many more are looking to set up shop here, particularly in the east coast capital cities of Sydney, Melbourne and Brisbane. Perth, too, is on the radar to a lesser extent.

The companies want a presence in Australia because they see strengthening consumer demand driven by both an increase in population in our capital cities and a stronger tourism sector, especially visitors coming from Asia and – specifically – China.

Australian Bureau of Statistics figures show Melbourne’s population rose by 2.4 per cent over the 2015-16 financial year, followed by Brisbane (1.8 per cent) and Sydney (1.7 per cent).

Total tourism spending in Australia reached a record $100 billion in 2016, according to national visitor survey figures released by the federal government in March 2017. The figures show that 7.6 million international tourists contributed $39.1 billion, to spend a total of about $5150 each. 

The fall in the Australian dollar is playing a part, not only making it cheaper for luxe brands to set up in Australia, but bringing in more foreign visitors.

“The huge influx of tourists is creating a lot more opportunity for the luxury brands,” says Dexus Head of City Retail Developments, Amanda Pieriboni.

“There’s likely to be a substantial increase in Chinese tourism over the next six years, and in the next decade there’ll also be strong growth from India and the Middle East.”

Squeeze is on

With so many luxury retailers jostling for space, competition is fierce. It’s putting upward pressure on rents, particularly in the Sydney CBD, and forcing local retailers further afield.

Rents being commanded for retail strip space on central Sydney’s Castlereagh Street and King Street are now between $5000 per sq m and $7000 per sq m, says Medich.

Brands are also branching out, opening stores in major shopping centres such as Melbourne’s Chadstone Shopping Centre, Westfield Sydney and Pacific Fair on the Gold Coast after establishing a presence with a flagship store in the CBD.

The expansion to shopping centres is partly due to the limited available space in CBDs, but also due to the retailers’ desire to capture a range of demographics.

Customers for luxury retail in strip locations typically come from an older demographic, while in a shopping centre customers are younger.

New developments inviting to more brands

Developers are meeting demand by providing more short and medium-term space. Pacific Fair, Chadstone and Castle Towers in Sydney’s Castle Hill are some of the shopping centres that have undergone redevelopment to make way for luxury brands.

Meanwhile, in the Sydney CBD, some landlords are undertaking development beneath their office tower to create more retail opportunities.

Medich says this increase in supply has created a short term shift in Sydney’s retail market, giving luxury retail tenants more choice and reducing pressure on rents. 

Beating out Tokyo, London, New York

Further growth in luxury retailing in Australia is inevitable, says Pieriboni.

“There is a lack of competition for luxury brands in Australia so luxury brands see Australia as a good opportunity because they can generally get higher turnover per store than they can in other markets,” she explains.

“In markets such as Tokyo, London and New York there is a higher saturation of brands, but there’s a long way to go in Australia before we hit saturation point.”

Luxury brands are mostly unaffected by the growth in online retailing, because customers typically want to try products before making such expensive purchases.

It’s also about the experience of being in a luxury retail store, where everything is high end, including customer service, the fitout and the quality of the product.