FRANCE MARKET OVERVIEW 2017 2018 OUTLOOK
CONTENTS Key figures 2017 4 Prime retail streets 5 Consumption 8 Tourism 10 Summary of openings 14 Trends for 2018 17
PRIME RETAIL STREETS IN PARIS KEY FIGURES FOR 2017 OPENINGS AT YEAR END 2017* 15.5 262 billion million +9% +5% Paris hotel arrivals, August 2017 (year on year) Luxury sector global t/o 2017 (estimate) 56% overseas visitors 249 billion in 2016 Source : Office du Tourisme et des Congrès de Paris Source : Bain & Company Rue Saint-Honoré Rue du Faubourg Saint-Honoré 8 32% 6 38 +7% 57 in 2016 Percentage in global spent on luxury goods by Chinese consumers in 2017 Number of luxury store openings in France in 2017 82% in Paris 30% in 2016 Source : Bain & Company Vendôme / Paix Avenue Montaigne 4 3 *excepted redevelopments 4 5
POSITIVE SIGNS
THE LUXURY MARKET CONSUMPTION The seasons go by... and show minor similarity. The luxury retail market may have seen mixed results in 2016, particularly in terms of tourism and new openings, but things changed in 2017 and all the previous trends were reversed. More tourists, fewer openings, more leases the luxury market continues to perform well and the outlook is looking good. Globally, the personal luxury goods market grew in 2017 to 262 billion, up by 5% in turnover compared with the levels seen in 2016; a stark contrast on the previous year (-1%). This growth has been driven by good underlying activity in the luxury sector (luxury cars, hotels, wines and spirits, gastronomy, fine art,...) which has also seen new sales records and double-digit growth (+11%) compared with 2016 and a turnover of 1,200 billion in 2017 ( 1,079 billion in 2016). The watch and jewellery sector still dominates and accounts for over a quarter of the market share for personal luxury goods, ahead of fashion design and cosmetics. In Europe, growth in the consumption of luxury items stood at 6% between 2016 and 2017, retaining a dominant market position in terms of sales and accounting for over a third of global consumption ( 87 billion). With three of the ten largest groups specialising in luxury goods and with LVMH in the top spot, France performed well in Deloitte s 2017 global ranking. LVMH retained its position as world leader and announced a 12% increase in turnover for the first nine months of the year; this was driven by fashion and leather goods sales over the third quarter (Louis Vuitton, Christian Dior Couture). 2017 should prove to be productive for other French groups which all announced significant increases over the first part of the year. The Kering group, ranked fifth globally, posted almost 30% growth over the first half-year 2017, driven by the luxury sector and the Gucci brand in particular which posted spectacular results over the 3rd quarter. L Oréal Luxe also posted double-digit growth at the end of September (+10.8%) and Hermès international (+10%) was ranked in 12th place in terms of global sales. GLOBAL CONSUMPTION OF PERSONAL LUXURY GOODS, Bn *Estimate Source : bain & company GLOBAL SPENDING ON LUXURY GOODS BY REGION UN 2017, % Source : bain & company Europa Americas Rest of Asia Japan China Rest of the world THE 10 MAIN LUXURY GOODS GROUPS BY TURNOVER Online retail blended with luxury With 23 billion of online expenditure, the e-commerce share of luxury goods purchases continued to rise, reaching 9% of market share in 2017. If this trend continues, the level of online sales could reach a quarter of luxury expenditure by 2025, revealing a spectacular acceleration in online sales. According to the online luxury barometer compiled by IFM and Matchesfashion.com, nine out of ten shoppers currently use the internet in the pre-purchase phase (search, comparison). One out of every 5 consumers spends 2,000 per year on luxury goods and over 60% of consumers claim to spend over 1,000 online. The penetration rate for m-commerce was estimated at 23% in October, up from 16% recorded last spring. This increase is due to the rising success of mobile use for the purchase of luxury goods, particularly among millennials for whom usage was twice as high as the other individuals. A broader range of clients As a microcosm of traditional retail, the luxury sector follows the same pattern in terms of changes, driven by a clientele that has become increasingly multi-sectorial and adept of navigating within the omni-channel offering. Luxury goods are no longer the preserve of the upper classes, as a growing number of consumers are seeking access to the privileged world of luxury in a bid to encounter this unique client experience. Purchase frequency and allocated budget will become the new indicators that differentiate this new generation of consumers from the traditional one. This phenomenon has prompted brands to develop a new ultra-luxury segment offering tailored and ondemand services in order to protect their exclusive nature. To this end, an increasing number of groups are securing their supply chains by acquiring production sites (Hermès, LVMH), allowing them to control both the manufacturing process as well as their supply chain (rapidity and distribution schemes). Combining space and temporality Shorter product life cycles have led to an increase in the development of temporary stores, particularly in the luxury sector, where sensationalism forms one of the core elements of its appeal. Initially experiments were carried out with pop-up stores for new markets or to test new products, but this concept has been emulated to such an extent that it has now become a seasonal event for some retailers. Chanel is now used to open a showroom in Courchevel in the winter and Saint-Tropez in the summer, benefitting from the seasonal shift in its clientele. CHANGE IN ONLINE SALES OF LUXURY GOODS, Bn, % Source : bain & company ONLINE LUXURY BAROMETER: SURVEY ON THE ATTRACTIVENESS OF VARIOUS TYPES OF WEBSITES, OCT 2017 Source : Matchesfashion, IFM CHANGE IN THE PERCENTAGE OF POP-UP STORES IN LUXURY STORE OPENINGS Sources : Deloitte Global Powers of Luxury Goods 2017 8 9
THE LUXURY MARKET TOURISM 2017: the tourists are back! PARIS HOTEL ARRIVALS, MILLIONS Even following the bad patch seen in 2016, France has retained its top position in the ranking for international tourist visits, ahead of Spain and the United States. It also retained its place for tourist expenditure, with almost 40 billion, behind the United States, Spain, Thailand and China. Fortunately, the decline seen in tourist visits to Paris was short lived and, to the great relief of the hotel industry, cultural sites and retailers, tourists returned to Paris in 2017. This increase in the number of visitors was mainly due to higher levels of foreign tourists (+38% over Q2 2017) who, by the half-year point, accounted for over 55% of tourists in the Capital and 46% of tourists in the Greater Paris Region. The sharpest year-on-year increases recorded at the end of August were for those tourists with a high level of purchasing power - Russians (+61%) and Japanese (+40%) - who are major consumers of luxury goods alongside Americans (+19%) and Chinese (+17%). Hotel occupancy rates also rose and reached an average of 87.4% in Paris in September 2017 (vs 82.9% in 2016); whilst the RevPar figure increased by 7% in Paris and the Greater Paris Region. Source : Paris Office du Tourisme et des Congrès CHANGE IN CUMULATIVE INTERNATIONAL TOURIST ARRIVALS IN PARIS OVER 12 MONTHS* This trend was confirmed by a 2.5% increase in the number of international travellers at Parisian airports since the beginning of 2017. And by consumption Driven by the influx of tourists, consumption in the Greater Paris Region rose to 10.15 billion by the end of H1 2017, a 12% increase compared with the same period in 2016. The sharpest increases were seen from Japanese (+40%), Chinese (+30%), German and American (+20%) visitors. Chinese, Indian and Swiss tourists also increased their daily spend which, combined with longer stays, contributed to the rise in expenditure volume in the Capital. Source : Observatoire économique du Tourisme Parisien *data as at August 2017 DAILY TOURIST BUDGET IN PARIS (IN ) AND AVERAGE NIGHTS PER STAY Source : Comité Régional du Tourisme du Grand Paris, Repères 2017 10
ACTIVE PROPERTY MARKET
THE LUXURY MARKET SUMMARY OF OPENINGS Trend reversal: fewer openings in 2017, but more commitments The decrease in investments seen over 2016 (-40% between 2015 and 2016) automatically affected the number of luxury store openings carried out over the course of the year. As such, 38 luxury stores were opened in 2017, meaning 19 fewer than in 2016, but four more than three years ago. The share of new store creations remained broadly in line with the levels seen in 2016 and accounted for half of the openings recorded in 2017. The percentage of store moves or renovations and extensions of existing assets fell slightly in favour of temporary stores which rose from 12% in 2016 to 21% in 2017. As a reminder, this format only accounted for 4% of openings in 2012. However, there was a 30% increase in signings compared to 2016, demonstrating both a surge in retailer confidence and a more optimistic outlook for the next few years in the luxury sector. At the time of writing, 12 openings have already been confirmed for 2018. As in previous years, fashion was the most active sector in terms of store openings. This sector accounted for almost 45% of openings in 2017, however this is lower than the proportion recorded for the last five years. The leather goods and watch/jewellery sectors have taken up the slack this year and accounted for 8% and 28% of openings respectively. The LVMH group accounts for almost 20% of the store openings for the last five years. The group was particularly active on the Boulevard de la Croisette in Cannes with the opening of a flagship Dior store and a Loro Piana boutique (relocation). The last few years have seen a considerable number of flagship store openings for Givenchy, Loro Piana and Kenzo. In addition, one of the key events of the year 2017 was the reopening of the Louis Vuitton flagship store in Q3 in the brand s iconic building on Place Vendôme. The Richemont, Kering, Chanel and Swatch groups also remained among the most active groups in France accounting for 7% and 5% of the total number of recordings since 2012 respectively. CHANGES IN OPENINGS OF LUXURY STORES AND PERCENTAGE OF NEW STORES IN FRANCE OPENINGS BY ACTIVITY 2012-2017 Source :Cushman & Wakefield OPENINGS BY MAJOR GROUP 2012-2017, % OF TOTAL LVMH Richemont Kering Chanel Swatch Group Hermès Armani 3% 2% 5% 5% 5% 7% 18% Paris, the city of luxury and fashion Around 240 luxury stores have opened in Paris since 2012, or an average of over 75% of the openings recorded a country level. Accounting for over 80% of the openings in 2017, Paris retained its position as the international capital of luxury and has widened the gap with the rest of the country; openings outside Paris account for only 18% in 2017, down from 32% of openings recorded in 2012. In addition to those brands traditionally located in Paris, new brands of Anglo Saxon inspiration have also open, including David Morris, Steinway & Sons, Vivienne Westwood and, most recently, Kate Spade. The Seine River Right Bank s attractiveness has grown since 2014 to accounted for 95% of the openings in 2017 (up from 84% in 2012), with a quarter of which were on Rue Saint-Honoré. The Vendôme/Paix/Saint-Honoré district clearly confirmed its dominant position in the Right Bank with almost 40% of openings in recent years and around half of the openings in 2017. Security measures set up around the Elysée Palace have disturbed activity on Rue du Faubourg Saint-Honoré and encouraged retailers and designers to look towards those districts to the east of Rue Royale. One of the main high streets to benefit from this shift is Rue Saint-Honoré which has taken on a luxury element following the extensions and renovations carried out at Place Vendôme (Repossi, Damiani, Van Cleef & Arpels and, most recently, Louis Vuitton and Boucheron) and the 2017 new brands on Rue de la Paix (Goralska and Vanity Fair). Recently, there have been several moves on Rue Saint-Honoré and this high street s success has not waned; it now accounts for 60% of new openings in the district. New store creations have been in the majority since 2012 and a quarter of these were by new market entrants. This trend should continue over the next few months with openings by new retailers close to the new Louis Vuitton flagship store (No. 354) and the legendary Colette concept store that closed down at the end of December after a 20 years of existence. Yves Saint-Laurent will take its place in 2018. Kate Spade also opened its first Parisian store at No. 418. Finally, Dior Couture has temporarily taken John Galliano s place at No. 386. With this increase of demand, the challenge for the area is that it is becoming increasingly difficult to identify available opportunities for spaces over 200 sq m. NEW RETAILERS IN PARIS - 2015 / 2017 Fashion Kate Spade Vivienne Westwood Fabiana Filippi Beauty La prairie The Harmonist OPENINGS BY MAJOR HIGH STREET IN 2017 Rue de la Pl. Paix Vendôme 6% 6% Bd Saint-Germain 7% Avenue George V 10% CHANGE IN OPENINGS IN THE VEN- DÔME/PAIX/SAINT-HONORÉ DISTRICT Watch-Jewelry David Morris Zolotas Shoes Santoni Barrett Rue Saint- Honoré 29% Autres Other 13% Rue du Fbg Avenue Saint-Honoré Montaigne 19% 10% Leather goods TT Trunks Verbreuil Perrin Other Steinway & Sons 14 15
THE LUXURY MARKET TRENDS FOR 2018 SUMMARY OF OPENINGS Despite a slight decline in its appeal, Rue du Faubourg Saint-Honoré has seen six openings including the extension/renovation of the Dolce & Gabbana store at the lower end of the road and in the most dense and soughtafter section. Maison Moreau has moved to No. 49 and Paul & Shark has opened at No. 36 after giving way to an art gallery at No. 68. Avenue Montaigne was ranked third in terms of Parisian openings in 2017 with relatively large formats (from 200 to 700 sq m). Kering, which opened a Balenciaga store at No. 57 and LVMH with the opening of a Dior pop-up store. The Taiwanese retailer Shiatzy Chen has also opened at No. 8, nearly opposite the Plaza Athénée Hotel. Le Marais continues its transformation to the higher end of the market with the opening of a Kenzo boutique at No. 120 Rue Vieille du Temple, close to showrooms for young designers. Retailers have followed the flow of international customers who have gradually shifted to the Right Bank; this has led to the emergence or the strengthening of districts with solid values, such as Le Marais or Rue Saint-Honoré. Activity in regional markets was relatively weak over 2017 with a cyclical pace, and strongly linked to global opening strategies. In a globalised market, foreign brands tend to favour opening strategies that involve an initial store in Paris before tackling regional markets. However, activity in regional markets is expected to see an upturn over the next few months. Luxury store openings in regional markets accounted for 18% of the year s overall openings. The Côte d Azur (Cannes, Saint- Tropez and Nice) was the focus of three quarters of the openings seen in recent years as well as virtually all of those seen in 2017. CHANGE IN OPENINGS BY DISTRICT 3% 10% 13% 37% 48% Le Marais St Honoré/Vendôme/Paix Other Autres OPENINGS IN REGIONAL MARKETS 2012/2017 16% 6% 32% 34% Montaigne / François 1er St Germain des Prés Number of openings set to rise Availability of larger formats (>200 sq. m of sales area) increasingly scarce on the most sought-after high streets Moves in regional markets set to recover Phenomenon of rising rental values on the most soughtafter high streets Opening decisions determined by some arbitration PRIME RENTAL VALUES ON LUXURY HIGH STREETS - /SQ M ZONE A Rue St-Honoré Avenue Montaigne Rue du Fbg St-Honoré Vendôme/Paix Cannes St-Germain-des-Prés St Tropez Nice 0 5 000 10 000 15 000 16 17
CONTACTS VINCENT ASCHER Retail Luxury +33 (0) 6 77 95 69 28 vincent.ascher@cushwake.com CHRISTIAN DUBOIS Head of Retail Services France +33 (0)1 53 76 92 96 christian.dubois@cushwake.com AUTHORS TYPHAINE GAILLARD Senior Research Analyst +33 (0)1 86 46 10 94 typhaine.gailllard@cushwake.com MAGALI MARTON Head of Research +33 (0)1 86 46 10 95 magali.marton@cushwake.com
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