Luxury brands play monopoly

Gucci owner Kering is to spend €1.3bn ($1.41bn) on a property on Via Monte Napoleone, Milan’s most fashionable shopping street, say Angelina Rascouet and Antonio Vanuzzo on Bloomberg. The move follows the purchase of a building on Manhattan’s Fifth Avenue for $1bn.

Kering has called the Milan investment part of a “selective real-estate strategy, aimed at securing key highly desirable locations” for its labels, and has said that it will “only purchase exceptional buildings in a limited number of cities if they create value”.

“Europe’s luxury brands have spent more than $9bn buying boutiques on the world’s top shopping streets,” says Carol Ryan in The Wall Street Journal. Chanel and LVMH are both rumoured to be “hunting for luxury properties in New York”. Part of this is due to the downturn in commercial property, with luxury brands taking advantage of the fact that they pay less in interest on the corporate bond market than other companies pay for a commercial mortgage.

However, the “flurry” of deals is also fuelled by the fact that luxury groups are increasingly competing to “make the shopping experience exceptional”. Brands are also worried they “could lose their spot on major shopping streets if they remain renters”.

Brands may be looking “to secure their footprint in the face of scarcity and competition” while looking for something to “give them an “experiential edge to help awe their customers”, says Lex in the Financial Times, but buying real estate “is not the smartest use of luxury cash flows”.

While Kering’s deal may save €50m a year in rent, the yield of just under 4% is still “much lower than the doubledigit return on capital that Kering made in 2023”. What’s more, lower rents from longterm tenants may make even that yield seem optimistic. This purchase could prove a “glitzy distraction” from the key task of turning Gucci around.