Luxury brand pivot to Asia Pacific

Restricted travel and closed borders around the world have profoundly affected luxury store opening strategies in the first half of 2020 with many brands forced into rethinking their retail investments. However, in Q3 2020 the strong bounce-back in physical store openings around the world, exceeding the quarterly average once again.

APAC Markets Increase Global Market Share

Global luxury expansion has undergone a regional rebalancing in 2020 with many retailers increasing attention on Asia-Pacific markets. The region accounted for nearly 40% of global high-end store launches between January and October of 2020. In 2019, APAC markets represented a 31.8% share. This is the first year growth in APAC markets has exceeded that of Europe.

The geographic shift in opening high-end stores has been happening for the past 3 years. This trend became pronounced after APAC retail markets reopened after lockdown to a recovery in luxury spending.

Mr. Anthony Selwyn, Savills Head of Global Retail said: “Asia-Pacific markets have contributed significantly to the global luxury brand business. This positive rebound after Covid-19 will likely stimulate more expansion and investment."  

China: More Store Openings, Increased Spending

The increase has been largely driven by retailers expanding their physical presence across China.

• China represents 18.8% of total global new store openings in 2020, easily outstripping the previous three-year average of 6.4%.
• The 64.7% YoY increase in high-end store openings in 2020, made China the only growth market during this period.

Many retailers have expanded store numbers to meet demand for luxury products, especially with Chinese tourists facing extensive difficulties getting to famous retail-destination cities such as London, Paris, and Milan.

Domestic tourism in China has recovered rapidly after a slow first quarter. By the end of August, domestic arrivals were 86% that of 2019, as reported by ForwardKeys. Tourist volumes sharply increased in early October over the Golden Week celebrating National Day.

Recovering domestic tourism has seen improving growth potential in luxury goods spending. The Chinese government sees domestic consumption as a key future driver of economic growth and efforts to boost domestic spending are underway. The latest Boston Consulting Group forecasts local Chinese spending on luxury goods in 2020 could increase by up to 30% YoY, despite stores being temporarily closed early in the year. In stark contrast, the global luxury market is expected to fall by up to -45% YoY, as Europe and the USA continue to be affected by Covid-19 effects such as the resulting prolonged economic downturn and increasing employment uncertainty.

Since the lockdown was eased, demand for luxury goods in China has increased. Hermes reported record sales of up to $2.7 million in Guangzhou on reopening day. Similarly, Canada Goose had increased its China presence with a new store in Chengdu, which upon opening recorded “unexpected” performance. Three additional stores are planned this year.

Viet Nam: Luxury Retail Remains Stable 

The luxury retail market in Viet Nam remains stable with retailers almost solely reliant on domestic demand while international travel remains restricted. Demand remaining high for prime locations is adding upward pressure on rentals.

Context

• Viet Nam is set to be one of the few countries in the region to deliver positive GDP growth in 2020. The Asia Development Bank (ADB) forecasts national GDP growth of 1.8% in 2020 rebounding to 6.3% in 2021. Viet Nam is expected to maintain economic stability and remain one of the fastest growing SE Asian nations.
• The Government being able to swiftly contain the pandemic has not just received praise from around the world, but smartly set the stage for a faster recovery than most regional peers.
• The trade surplus has helped keep the currency stable, in turn reassuring foreign investors.
• With GDP per capita approaching USD3,000, the rapidly growing middle class is approaching an inflection point, Potential for domestic consumer spending and growth is set to increase together with increasing demand for property and continued real estate price growth.
• The continuing trade war between the US and China, as well as increasing salaries in China, will result in further manufacturing and FDI shifts to Viet Nam.
• In early 2021 the National Assembly elections will see the key Government officials confirmed for the next 5 years and continuing political stability. With the elections over, faster decision making will see increased spending on key infrastructure projects further benefit the real estate sector.

2020 has been a challenging year for classic retail. While sales in some sectors may increase, others will significantly decline. Many retailers are considering closing less profitable stores. More targeted promotions, and more complete integrated on- and offline strategies are needed to reach new customers, tap increasing demand, and achieve growth.