Paris Luxury Retail Finds New Homes

The luxury Hermes Kelly 32CM Handbags landscape in Paris is seeing some designer changes.
For years, most high-end fashion brands planted their flags in two central neighborhoods—along the leafy Avenue Montaigne, home to stores such as Dior and Chanel, and on the Rue du Faubourg Saint-Honoré, where Hermès's flagship is nestled among the presidential palace and prominent embassies.

Now, the arrival of millions of Hermes Birkin Handbags, many from emerging markets such as China, Brazil and Russia, is changing that. With a new brand of wealthy clientele—and a shortage of space—Paris's luxury-brand owners are setting up shop in fresh parts of the city.
"There's a scarcity of locations and everyone wants to be in the same place," says Cyril Robert, head of research for commercial real-estate agency Knight Frank in France. "Because there are few large spaces, some will make bets on new locations."

A good example is watch and jewelry group Cie. Financière Richemont CFR.VX -1.75% . Last year, the company plunked down €50 million ($66.2 million) to get its hands on a spacious shop in the center of Paris. The investment—Richemont's first with a new real-estate fund—is a high-stakes bet that tourist spending will fuel a new luxury shopping neighborhood within spitting distance of the capital's biggest department stores.
Leading luxury executives will be eyeing the area around Richemont's new building to see if the owner of Cartier and Montblanc can begin capturing a flow of Chinese tourists that circulate the nearby Galeries Lafayette and Printemps department stores.

Three years from now, the boundary for glamorous shopping will likely be pushed further east when the former Samaritaine department store, which belongs to luxury Hermes Kelly 32CM Handbags giant LVMH Mo?t Hennessy Louis Vuitton, Hermes Kelly 22CM MC.FR -0.87% reopens with a Louis Vuitton store, drawing visitors to the nearby Louvre museum.
The boutiques are a stage on which luxury labels present their image. Though tourists are often familiar with global brands such as Vuitton, Gucci, Prada and Chanel via stores in their own countries, how the brand presents itself in its home market is critical. The brands want large spaces to welcome their clients in style. Luxury operators require a minimum of about 400 square meters (about 4,306 square feet), whereas the average Parisian shop measures just 67 square meters, says Mr. Robert.

That puts a premium on high-end and historical buildings, and some of luxury's most powerful players, such as LVMH and Richemont, use their financial firepower to buy the buildings outright instead of renting them. For instance, Richemont's new 2,000-square-meter property is a wood-paneled historical monument that housed the Old England clothing boutique for more than 100 years. LVMH last year bought the building that houses its Vuitton flagship in London on New Bond Street for about ￡300 million ($487 million).
Luxury retailing remains an anomaly in the broader retail segment. High-end labels remain more focused on their bricks-and-mortar stores than on e-commerce, and flagships are a cornerstone of their strategies. Especially in shopping capitals such as Paris, London, and New York, there is little turnover in luxury locations, unlike the vacancies in mass-market retail.
Indeed, rental prices in the top cities haven't fallen. In Paris, prices have steadily risen about 10% annually in recent years, according to luxury and real-estate executives. The average for a prime location now goes for about €8,000 per square meter ($984 per square foot), according to Knight Frank. However, M.A.C., Esteé Lauder Cos.' EL -2.05% cosmetics chain, recently signed on a boutique on the famous Champs Elyseés avenue where the storefront rents for €18,000 per square meter.

In Paris, new openings have been concentrated in two areas in recent years. The left bank, around the Boulevard Saint-Germain and the Rue du Bac, was first colonized by Yves Saint Laurent decades ago but remained associated with booksellers and the literary world.
In the past two years, major brands such as Ralph Lauren and Hermès crossed the Seine to set up their first shops there. Ralph Lauren spent three years renovating a 17th-century building, which also houses his restaurant. Several months later, Hermès cut the ribbon on a vast store built around an Art Deco swimming pool. Tag Heuer, Burberry and Brunello Cucinelli have also joined the neighborhood. Next up is an expansion of Vuitton's Saint-Germain store: It will be taking over the adjacent iconic bookstore, La Hune, this year.
The Faubourg Saint-Honoré district has recently stretched far down the street. Balenciaga is renovating a former gas station for its third boutique in the capital. LVMH chairman Bernard Arnault debuted the first boutique for Moynat, a niche trunk and accessories maker that he bought as a personal investment. When the Mandarin Oriental hotel opened last year, it included two new shop spaces that were immediately rented to Ports 1961 and Dsquared2.
"The fact the locations were already rented when the hotel opened is a sign of how high the demand is," says Nicolas Reynaud, deputy managing director of Société Foncière Lyonnaise, a real-estate group that owns the building.

Across the river, renovation has started on the former Old England. Richemont will rent part of the space to Swiss watch retailer Bucherer, which will allow Richemont's brands such as Vacheron Constantin and Jaeger-LeCoultre to be sold alongside rivals such as Rolex and Patek Philippe. Richemont will keep the other part of the space for a separate Cartier boutique, which will be several times bigger than the small space in the Galeries Lafayette department store.
Competitors have already scoped out the neighborhood but other locations remain rare. Vuitton was in talks with French bank Société Générale about the ground floor of its historic agency across the street from Galeries Lafayette, according to people close to the situation, but the bank doesn't want to give up its valuable spot, where many of its wealthiest clients have their safe deposit boxes.