The latest report by Savills, a global real estate advisor, highlights a shift in the luxury retail landscape. The report, titled ‘Global Luxury Retail 2024 Outlook’, highlights while the market faces some challenges there is a shift in focus for luxury brands, prioritizing local markets and customer experience over aggressive global expansion.

The report acknowledges current economic challenges but emphasizes the long-term resilience of the luxury sector. While growth in store openings slowed in 2023 after a post-pandemic surge, Savills points out this doesn't signal a decline. Instead, it reflects a strategic shift by luxury brands towards a more customer-centric approach. This approach prioritizes understanding the specific needs and preferences of local consumers. The report highlights a rise in store openings in resort destinations, where affluent clientele live and vacation. However, finding suitable real estate in these areas can be challenging. Savills suggests that luxury hotel expansion might create opportunities for co-location, benefiting both retailers and hospitality businesses.

Key takeaways from the Savills Report

Customer-centric strategy: After years of tracking store openings, Savills emphasizes the increasing importance of the customer in real estate decisions. Brands are prioritizing locations that cater to their target audience's needs and preferences.

Local market focus: There's a move away from a purely global expansion strategy. Brands are paying closer attention to the specific strengths of each market and tailoring their presence accordingly.

Resilient luxury spend: Despite headwinds, luxury spending is expected to see average annual growth of 4 to 8 per cent by 2030, according to Bain & Company. This indicates a long-term optimistic outlook for the sector.

Strategic store expansion: While store openings slowed in 2023 compared to the post-pandemic boom, resort markets continued to see growth. Savills suggests luxury hotel expansion could offer new opportunities for retail partnerships.

Real estate a key battleground: Despite facing headwinds, real estate acquisitions by luxury brands reached new highs, indicating a continued focus on physical stores alongside digital strategies.

Focus on underserved markets: The report identifies cities with strong local affluence and potential for luxury retail growth, highlighting opportunities for brands in these areas.

The Middle East on the rise: Savills points to the Middle East as a region attracting growing interest from luxury brands due to its potential.

The report also emphasizes the ongoing importance of physical stores. While e-commerce remains a powerful force, Savills argues that brick-and-mortar locations are crucial for brand experience and customer engagement. Interestingly, the report finds that despite economic headwinds, property acquisitions by luxury brands are at an all-time high, indicating a long-term commitment to physical retail space. Savills also identifies cities with strong local fundamentals and a potential for underserved luxury markets.

Overall, the Savills report paints a picture of a luxury retail sector adapting to changing consumer habits and economic realities. While acknowledging short-term challenges, the report underscores the long-term strength of the market and the enduring importance of physical stores alongside a robust digital presence.