International brands to continue betting on physical retail to drive sales
New York, Paris and London have demonstrated that they retain the key fundamentals of a successful retail location and are set to bounce back quicker this year than other destination cities, according to Savills Retailer Attractiveness City ranking, produced as part of its 2022 global Impacts research programme.
“These cities all benefit from affluent domestic markets and have already demonstrated far higher levels of resilience over the last 18 months,” says Marie Hickey, director of retail research at Savills. “New York (ranked 1st), suffered relatively less during the pandemic due to a robust domestic tourism market and a lower penetration of ecommerce in Paris (2nd) has steered costumers to its bricks and mortar luxury stores.”
In comparison, cities such as Hong Kong (4th), which are dependent on a steady stream of inbound tourism, have faced sharper declines and will face a longer road to recovery.
By sparking this mixed recovery among key destination cities, Savills reveals how the pandemic has created opportunities for retailers in a number of emerging markets, primarily across the Middle East and Asia.
In Dubai, many luxury brands are represented by mono-brand stores through local franchises but with the recent change in government policies, Savills is seeing international brands come in directly looking to take back full control of their stores. Cairo, Saudi Arabia and Bahrain all have relatively affluent domestic populations and also currently represent interesting opportunities for luxury retailers in this region.
Nick Bradstreet, director, head of retail, Savills Asia, comments: “A stringent Covid-19 containment policy in China has fuelled domestic tourism and subsequently the emergence of new retail hotspots. Luxury brands will follow the lead of top developers which are expanding into Chengdu, Hangzhou, Kunming and Ningbo, among others. Of these, we see the most potential in Hainan, with the full island set to be a duty free zone by 2025.”
While several brands struggled to sustain sales throughout the pandemic, there are some sectors that really performed, namely; athleisure, homeware, wellness, F&B and electric vehicles.
Sam Foyle, co-head of Savills Prime Global Retail team, advises: “Some successful brands within these sectors are capitalising on their strong revenues during the pandemic. With a rebasing of rents in some markets, and units in great locations being available and far cheaper than in 2019, now is an opportune time to acquire new sites and grow their physical footprints. Additionally, for dynamic luxury brands, the current market may make it possible to relocate existing stores to larger units in stronger locations, as well as providing opportunities for new luxury entrants.”
The role of the physical store was already evolving before the pandemic, however the need for brands to reconnect with their customers and a desire for human interaction following long periods in lockdown, has only intensified this trend. “In an increasingly digitised consumer landscape, physical stores are now becoming aspirational destinations that straddle leisure and entertainment too,” continues Marie Hickey.
Savills has observed an interesting reverse trend for brands taking on stores that have traditionally not needed to operate from a bricks and mortar location. They are using them purely as part of their brand building strategy. This year, for example, streaming giant Netflix is set to open its first physical store in Tokyo.
“Covid has created inevitable changes for the retail industry, predominantly with the structural shift towards soaring levels of ecommerce activity,” continues Sam Foyle. “However, the ramifications of the pandemic on consumer behaviour have served to accelerate previous trends and the resilience of many of these destination cities infers that physical retail remains an essential component of a brand’s strategy to reconnect with customers, enhance exposure and ultimately drive sales.”