London Lures Shoppers with Cheap Luxury Goods, Even as the Bargain not Expected to Last for Long

Driven by a combination of its core characteristics and short-term boosts related to the U.K.’s vote to leave the European Union, the lure of London for luxury shoppers has tightened its pull in recent months.

According to a report released this week by real estate services group CBRE, noting the highest of any of the 90 global markets tracked, prime retail rents in London soared by an eye-watering 53.8 percent annual rate to the end of June.

With rents costing an average $1,684 per square foot per year, behind Hong Kong at $1,856 and New York at a stratospheric $4,000, this leaves London in third place in the most expensive prime retail markets.

London has been catching up to its second-placed rival which saw a one-third tumble in prime rental values in the past year, as Chinese shoppers have reined in their trips to Hong Kong and locals have tempered their spending.

According to Hugh Radford, chairman of central London retail at CBRE, believes the appeal of London’s finest retail sites is unlikely to diminish any time soon and said that this gap may keep shrinking.

“Identifying exactly the right location is of crucial importance to retailers. For high-end retailers in particular, this comes down to a small number of highly desirable streets within London – including Bond Street, Sloane Street, Regent St and Covent Garden,” Radford said.

“Supply – and turnover of occupiers – is therefore limited by the simple fact that they are loathe to leave spots once in situ in coveted locations. There is inevitably high demand when such properties do make it to market, driving rental growth,” he concluded.

As retailers tend not to inflict currency changes on their consumers immediately after they occur, luxury shoppers on a foreign dime have been able to snap up some compelling bargains due to the plummeting pound in recent months, in  addition to London’s intrinsic appeal.

“Luxury brands tend to resist broad brush pricing adjustments to avoid generating resentment in consumers who have already purchased the same item at a higher price. This is in contrast to more commoditized consumer goods where the impact of currency and commodity movements is often passed through swiftly to the end purchaser,” said Nick Pope, U.K. head of fashion and luxury for consulting firm Deloitte.

The sterling fell down around 18 percent against the U.S. dollar since the Brexit result and how just much of an effect sterling’s fall has had on luxury items is shown in a report from Pope’s team at Deloitte released earlier this month.

Compared to identical goods in France, the U.S. and China, over 64 percent of luxury goods are currently cheapest in the U.K., the report found.

Compared to $1,565 in France and $1,669 in China for this season’s covetable “foulard fringe” dress from Italian fashion house Balenciaga, a purchaser would be charged only $1,369 in the U.K., says Deloitte bringing that example to life.

However, this situation is unlikely to last forever, Pope says.

“If sterling weakness persists over the next 6 – 12 months and margins continue to come under pressure, I would expect more brands to incorporate price changes,” he added.

With Visit Britain, the U.K.’s official tourism website noting a 2 percent jump in tourist visits this August versus a year ago and a 4 percent rise in tourist spend, the potentially short-term window for bargain hunters is not going unnoticed by tourists.

Her experience is reflective of these trends, says Eve Baker, managing director at Beiwei 55º Travel which organizes mandarin-language guided tourism trips to the U.K.

“Our Chinese customers often like us to incorporate an element of shopping into their itineraries, but post the Brexit vote we have certainly noticed even more of an emphasis on this,” according to Baker.

(Adapted from CNBC)

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Categories: Economy & Finance

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