Luxury Retail Is Getting Smarter With Data

Luxury goods companies in North America, whether individual brands or conglomerates, have historically made decisions driven by creative priorities. With organizational culture shifting amid a more competitive landscape, these companies are now behaving in a more data-centric, analytical manner. Companies that continue to make real estate decisions based on intuition or following the market will be left behind. Those that decipher how best to use their data to actively track consumer trends while developing expansion strategies that create synergy between online and brick-and-mortar sales will lead.

The luxury goods industry has seen a 56% increase in talent hires of data scientists since 2019, according to LinkedIn™ Talent Insights. This growth is anticipated to continue, with retail data scientists and software development roles projected to increase by 20% by 2032, making these roles the fastest-growing department within the industry. In addition, executive hires from LVMH to Canada Goose’s new Chief Data Officer indicate an increased priority on smarter, data-driven decision making.

Three main drivers are behind an increased use of data analytics in real estate decisions within the luxury goods industry:

• Rise of Omnichannel Sales: With omnichannel becoming the norm in retail and luxury retailers seeking to enhance cooperation between in-store and online shopping experiences, the value of the physical space—and its role in the sales cycle—is gaining greater significance. The presence of brick-and-mortar locations has a direct impact known as a "halo effect" on online sales, and organizations are now quantifying the impact of foot traffic, in-store experiences, SKU turnover, retail positioning—along with online sales—to gauge the overall profitability of each store.
• Increased Capital Restraints: Flagship stores are no longer evaluated based on their brand and marketing benefits, higher interest rates have driven cost awareness, and post-pandemic organizations are looking for greater flexibility in lease terms and a stronger partnership between retailers and landlords. These pressures have led to increased scrutiny of spending, whether committing long term to single trophy locations, introducing more flexible renewal or termination lease options or purchasing properties as a investment in prime markets.
• New Competitive Landscape: Although established luxury companies have emphasized their physical presence, new digital-native entrants are striving to bring luxury online. In addition, an increased direct-to-consumer retail trend has propelled the industry into a more data-driven approach to create synergy between online retail and brick-and-mortar stores, compete with future-focused peers, and more accurately develop their expansion strategies.

These drivers have bolstered a more sophisticated relationship between retail tenants and investors, leading to longer negotiation periods, greater lease flexibility and larger concession packages when transacting in high-street markets.

Due to a more concentrated market demand (i.e. asking rents in New York’s prime luxury retail corridors are three-to-five times higher than average Manhattan retail) and increased cost of opening retail in Tier 1 markets, two trends have emerged: smaller stores for new brands and a high street presence for established companies.

For newer entrants in the luxury market, a reduction in tenant footprints has been prevailing for six years. Retail leases in New York under 10,000 sq. ft. constitute 90% of deals transacted annually since 2018, according to CBRE NYC Retail Research, indicating the significant demand for smaller footprints due to more efficient supply chain and omnichannel strategies.

For more established luxury companies, large footprints in key markets has and will continue to prevail, with their high street location driving significant value to influence consumer perception. This has further led some companies to consider buying over leasing when opting for larger locations, for economic factors, as well as to limit competition in competitive markets.

What does increased investment in data analytics mean for the future of real estate in luxury goods?

CBRE expects continued evolution in both the use of brick-and-mortar locations and the terms of retail lease transactions. Established luxury companies will identify expansion markets with greater precision, capitalizing on their proprietary consumer demand data. Retail lease terms and deal structures will be increasingly linked to sales revenue with greater analytics of how omnichannel revenue is tied to brick-and-mortar presence.

Select retailers who embrace digital sales and are striving to enter the luxury market will take on a more multifunctional brick-and-mortar presence that acts simultaneously as a distribution point for last-mile delivery and returns. Finally, the experience-driven store will continue to drive luxury retail, offering a heightened sense of exclusivity as companies become smarter in quantifying the ROI of each experience-based approach. As the internet brings greater equality and accessibility to the retail sector, luxury will further pursue personalized in-person experiences to create brand value and maintain aspirational buying power.