China is expected to become the worlds largest luxury market by 2025
Savills: Luxury brands to focus new store activity in large domestic driven markets in China, the Middle East and North America
In 2022, luxury retailers are likely to continue expanding their global footprints with new store activity in large domestic markets in China, the Middle East and North America, according to Savills recent report on the global luxury retail market.
Following on from the spending patterns of the past few years, China is expected to become the world’s largest luxury market by 2025, according to Bain & Company. In recent years, new store activity globally has largely followed the Chinese luxury consumer into destination markets. However, with the pandemic restricting international travel, the firm recorded that 21% of the total luxury goods spent last year took place inside of China.
Whilst China was the only market to increase its share of new openings last year, in quantum terms, there is also a reported bounce in new store activity in the Middle East, albeit its global share held at 3%, highlighting the under-tapped potential of the region.
In 2021 in the Middle East, there was increased activity in Saudi Arabia where historically Dubai was the focus for new store openings. Particularly, there was a very marked increase in the dominance of ultra-luxury with such brands accounting for 92% of new store openings in the Middle East.
Kenny Lam, Retail Advisory, Savills Middle East, says, “In Dubai, many luxury brands are represented by monobrand stores through local franchises and partners but with the recent change in government policies, we are seeing international brands come in directly looking to take back full control of their stores. As was the case with China, activity in these markets last year was also focussed on those markets with large and relatively affluent domestic populations, and Egypt, Saudi Arabia and Bahrain all currently represent such opportunities for luxury retailers. The trend of new store openings in the region is expected to remain in focus as brands continue to explore the opportunity for directly owned stores.”
The top three luxury houses, LVMH, Kering and Richemont, continued to expand their share of new openings. Together they accounted for 41% of all new openings globally in 2021, up on their 2019 share of 33%. The three players dominating the share of retail openings last year comes as no surprise considering their brand acquisitions prior to the pandemic. Given that they have accelerated their M&A and funding activity over the last 12-18 months, it certainly suggests that their dominance is likely to increase.
The Savills report also indicated that there was an uplift in luxury retail opening activity in North America in the latter part of 2021, with year-end numbers largely in line with that seen in 2019, however its global share of new openings was down from 25% in 2019 to 14%. While the major destination cities in the region, such as New York and Los Angeles, continued to attract activity, new openings were seen in cities relatively underserved yet still with relatively affluent populations such as Dallas and Houston.
Meanwhile, Europe has seen the most significant decline in new openings since 2019, with its global share of new store openings down from 35% to 14% in 2021. This reflected the decline in tourist spend in several European destination cities through the pandemic, a key driver of luxury spend performance in some markets.