Property

Saying bye to the Bund

Why luxury brands are quitting Shanghai’s most sought-after area

CHINA

Iconic street is losing its lure for brands like Armani, whose flagship store has closed

In 2004, American architect Michael Graves unveiled his redesign of Three On the Bund, a landmark building formerly home to the British Mercantile Bank. Converted to a high-end shopping centre, the building then lured tenants like restaurateur Jean-Georges Vongerichten, Evian (it opened a spa) and Giorgio Armani, which opened an enormous flagship store.

A little less than a decade later, Armani is saying ciao to the Bund, Shanghai’s most visited tourist destination, and closing its flagship outlet.

Armani isn’t the only retailer to shun the popular riverfront district. Its neighbour Evian shut down its spa last year. Hugo Boss also closed down its own store on the Bund in 2009 due to poor sales (Boss was the first foreign luxury brand to decamp). Labels like Dolce & Gabbana, Patek Philippe and Boucheron have upped sticks too and Global Entrepreneur says other luxury firms are thinking about vacating their space on the Bund when their leases come to an end.

So what is going on?

Zhou Ting, head of the Fortune Character Institute, a consulting firm specialising in luxury products, says many foreign firms chose older buildings on the Bund as showcases for their brands rather than as stores.

“When Armani first opened its flagship store in 2004 only a handful of Shanghai residents were familiar with the brand. But many domestic tourists noticed the brand when they visited the Bund, raising the profile of Armani significantly. So in a way, the store on the Bund has fulfilled its role. Its job is finished,” says Zhou.

Hong Shuhui, an executive at Colliers International, agrees. He reckons that a presence on the Bund is more about brand building than making money. The stores are meant to intrigue more ‘ordinary’ shoppers who might then start spending at more affordable sub-brands (in Giorgio Armani’s case, that would mean shopping at Emporio Armani or Armani Exchange).

Retailers have also complained that, although the Bund is a prime location, most people are there for sightseeing and not for shopping. Watchmaker Piaget’s chief executive Philippe Leopold-Metzger told Global Entrepreneur: “Locals don’t go to the Bund to buy luxury goods, and those that go to the Bund don’t buy luxury products.”

Piaget says it has had much more success opening stores on Nanjing Road and Huaihai Road, Shanghai’s two main shopping streets. Armani has kept its store in Plaza 66, a high-end mall on West Nanjing Road.

“The truth is, for luxury brands there are simply too many choices other than the Bund in Shanghai,” says Hong.

In fact, retail rents on Nanjing Road have overtaken the Bund as the most expensive in Shanghai, coming in at almost twice as much as the riverside space. Yet despite the discrepancy, luxury firms are still opting to switch to locations along the Nanjing Road.

Landlords on the Bund are trying to fight back by generating new buzz in the district. For instance, Gucci recently opened a three-floor ‘club’ in Rockbund, a quiet street right behind the main Bund thoroughfare. Patek Philippe and Valentino have followed suit. Targeted at the most exclusive clients, celebrities and other VIP’s, the Rockbund area is positioning itself as offering unprecedented privacy and exclusivity for shoppers who don’t want to jostle for space with run-of-the-mill tourists on the Bund proper.

But the Bund’s real estate agents will be worried that more luxury stores may close this year as upscale shoppers rein in their spending. Growth in China’s luxury spending this year has slowed to 7%, says CBN, a drastic drop from the 30% increase the previous year.

The much-publicised crackdown on conspicuous consumption is playing a significant role, CBN thinks, forcing some of the biggest spenders to make more of their luxury purchases abroad.

That doesn’t mean that the Bund’s time in the sun is gone forever. Second-tier luxury labels are now moving in for their own brand building purposes, matching the earlier efforts of the tier one brands. For instance, German leather goods firm MCM (Mode Creation Munich) has replaced Armani as the anchor tenant at Three On The Bund.

And although the Bund may have lost a little of its glamour, Shanghai is still one of the most vibrant property markets in China. Just last week real estate developer Beijing Fu Run Tian Cheng bid Rmb4.6 billion ($749.6 million) at a land auction, the highest amount paid in Shanghai this year, for a commercial and residential site.

“The site is not located in the city centre and was worth about Rmb25,000 per square metre,” Jim Yip Kin-shing, managing director of investment at DTZ China, told the South China Morning Post. “In the past only sites in the city centre could fetch Rmb30,000 per square metre. But now, this site sold for Rmb29,229 per square metre. You can see the land price is rising.”


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