Behold the Super Mega Flagships
Europe's biggest luxury brands are finding a sweet spot in outsized retail statements, with China a particular focus.
For luxury brands in search of retail magic, bigger is definitely better.
Dior Paris 30 Montaigne and Tiffany & Co.'s Landmark store in New York are setting the pace as luxury temples that are also full-fledged tourists attractions with cultural, hospitality and experiential elements galore.
In order to preserve the scarcity and exclusivity that help define luxury, Europe's biggest players are reining in retail rollouts in favor of fewer, but more spectacular, locations.
"You don't want Louis Vuitton having as many stores as Starbucks," said Delphine Vitry, founding partner of Paris-based luxury consultancy MAD. "You need the mega store.…It is a demonstration of power, of attraction, of desirability, the scale of the brand's territory and its cultural impact."
In an interview, Vitry explained that luxury boutiques today need to become "even more attractive" in order to generate more traffic and boost productivity per square foot, which means showcasing a wider array of products, engaging all the senses and creating memorable experiences.
"You want to live something," she explained. "Today, it's not only about adding more pieces of art. It's about enlarging the territory of the brand by being a cultural place.…You don't want it to feel like a supermarket of luxury."
In a recent report, Bernstein luxury analyst Luca Solca described an escalation in the size and quality of flagship stores. For example, Dior's sprawling Avenue
Montaigne complex, which opened in
March 2022, incorporates several eateries, a museum and hotel suite in addition to home, beauty and fine jewelry departments.
"What is unique in this Dior project is that a museum, several spaces devoted to entertainment and enjoyment, and a commercial flagship store are all built into one connected system," Solca said. "The end result is that the whole is more than its component parts, with a dramatically increased power to surround and conquer visitors, inebriated by a Dior 'full immersion.'"
Such outsized flagships induce "shock and awe" in consumers, which boosts their perception of intrinsic brand value, according to Bernstein.
"It's the right thing to do: in a world where you can do everything on your phone, the store has to become exceptional to be worth a visit," the report concluded. "More importantly, these large stores do not represent a sacrifice for the income statement, but — on the contrary — thanks to the accompanying investments in communication, they are also very profitable, with turnovers of several hundred million euros, and high margins."
Bernstein noted that between 2019 and 2023, the store networks of major luxury brands increased by only half a percent point, with 40 percent of their stores concentrated in 25 key cities.
Tokyo, with 234 luxury stores, tops the list, followed by Seoul with 221, Paris with 165, Hong Kong with 148, and New York City with 128. London, Shanghai, Beijing, Osaka and Taipei round out the top 10.
The Bernstein analysts noted that China is "on the verge of a new retail escalation," with a host of new projects coming to market, and mega brands supersizing in order to reach different consumer cohorts.
Examples include:
Dior expanding to four floors in Shanghai's Plaza 66, including a luxury home department and dedicated space for VICs
Fendi Casa opening a flagship store in Shanghai's 1788 Square mall
Shopping mall projects Lee Gardens in Hong Kong, and in Shanghai the CPIC Xintiandi Commercial Center and K11 Huahai Road, both slated to open in the next three years
Solca flagged a favorable environment in Greater China for mega brands to keep supersizing their retail statements, thanks to better locations, lower rental costs and a higher contribution from landlords to capital expenditures.
According to Weiying Guo, senior associate director at Cushman & Wakefield in China, it's also safer to expand in existing locations than open in new malls, unless the location is handled by leading developers such as SKP, Swire or China Resources.
Guo added that it usually takes two to three years for a brand to expand in the desired location. Citing the Taikoo Li Sanlitun complex upgrade, for example, Guo noted that the preparation started more than two years ago.
"Almost all major luxury brands will have their mega flagship stores in the north district by next year. As a result, secondtier players are being relocated to the south district, which was once occupied by fast-fashion brands. The thing is that there will be no new luxury malls in Beijing in the near future as the creation of luxury malls is more stringent than in Shanghai.
So the upgrading of Taikoo Li would be the last chance for anchor brands to expand here for now," Guo said.
The situation in Shanghai is different, Guo noted.
Upcoming projects such as the Hongkong Land $8 billion West Bund development, and Sung Hung Kai Properties' mega complex ITC in the area of Xujiahui, would be able to offer huge retail space for brands that are not able to get premium locations in popular luxury malls such as Plaza 66, iAPM or Shanghai IFC.
Meanwhile in Paris, Gucci is constructing a future mega flagship on the Rue Saint Honoré — a stone's throw away from picturesque Place Vendôme. It is making a similar move in London, with plans to open a 16,000-square-foot store on the site of the former Versace flagship on New Bond Street.
While most observers predict super mega flagship stores will proliferate in the future, they will be only one part of a larger ecosystem of physical touch points for big luxury brands.
According to MAD's Vitry, other key elements include pop-ups, seasonal stores in top resort locations and private stores, which are accessible only by appointment or invitation. Again, Gucci is pushing the latter concept with its Salon format, the first of which opened in Los Angeles last April. Nine more are expected to follow in New York, Paris, Milan, London, Dubai, Hong Kong, Shanghai, Taipei and Tokyo, each with its own collection of product.
The Louis Vuitton Objets Nomades space in Shanghai's regeneration of the historic Zhangyuan Shikumen compound, which is adjacent to HKRI Taikoo Hui, is another example, according to Guo.
The three-floor "long-term" pop-up offers an experience not unfamiliar to the nearby Prada Rongzhai, blending storytelling with local architecture flare, to big spenders who are willing to put down big deposits for bespoke trunks or furniture.
"This reservation-only space compliments well with the brand's flagship store at Plaza 66, and would form a great synergy with the upcoming store it plans to roll out at HKRI Taikoo Hui," Guo added.
She also pointed out that the upsizing of stores in China comes at a particular time. The nation's middle class is no longer a source of growth for these major players under the current tough economic climate.
"You don't see anyone actively talking about them anymore. Of course, brands won't go on the record and say they're abandoning the middle class, but there has been reporting about an internal LVMH memo that it does not consider those who earn less than 3 million renminbi a year [about $413,000] in China as their target customer," Guo added.
Chanel, Dior, Vuitton and Christian Louboutin are among the other luxury brands that have opened freestanding private stores or VIP salons in recent years.
MAD's Vitry noted that the level of business a luxury brand does by appointment ranks as a key performance indicator since the level of engagement and conversion rates are vastly higher than for walk-ins.
Top jewelry players can generate as much as 40 percent of their revenues from appointments.
Vitry noted that VIP stores can wrench even more profitability than super mega stores since they can be located on the upper floors of buildings, which typically command lower rents.
And by communicating about them, it helps to further elevate the brand and send the message that it has a sufficiently wide offer to warrant a personal shopping appointment in a vast, private salon. She noted that high rollers buy not only exceptional pieces, but also large quantities from the collections displayed in stores.
"The total number of stores should not increase. But I would say the marketing segmentation of the stores could increase," she said.
Guo observed that making the super VIPs in China feel special is key, especially after the broader market reopens after the pandemic.
To wit: The recently unveiled Chanel VIP salon in Guangzhou's Taikoo Hui had a different entrance from its main store, which is known for its long queue. It physically separates the brand's big spenders from the rest.
In the same mall, Dior and Louis Vuitton have also taken dedicated spaces at the adjacent Mandarin Oriental hotel, and former members' area for the mall, respectively, to highlight its high jewelry offering and to better serve the VIPs.