The global luxury market continues to outpace expectations. Luxury spending exceeded €1 trillion last year largely driven by personal luxury good purchases[1]. Americans were the second-largest group of luxury buyers behind the Chinese, making up nearly a quarter of the global luxury spend worldwide. But as Karl Lagerfeld famously said, “keep the best, forget the rest” and today’s luxury retailers are doing just that by selectively targeting 11 major U.S. cities for their store footprints. According to JLL’s new Destination Retail 2016 report, which looks at the top cities worldwide for retailing, the United States is the undisputed global driver of luxury retail growth, with New York City leading the charge.

“International hubs like London, Paris and Milan are consistently magnets for luxury retailers’ store expansions, but discerning retailers are increasingly eyeing core U.S. markets beyond New York,” said Naveen Jaggi, President of Retail Brokerage and Capital Markets for JLL. “Luxury retailers’ portfolios are meticulously placed to build brand credibility and their scope now includes cities like Miami, Las Vegas and Dallas.”

According to JLL’s Destination Retail report:

• Las Vegas bumps Chicago out of the No. 2 U.S. spot, with some luxury retailers opening two or more stores within the two-mile stretch of the Strip.
• Luxury retailers have always loved Los Angeles, but the extremely tight market kept many new retailers out. But a loosening of the market and new players have rocketed LA from No. 9 to No. 3.
• Miami’s Design District and international tourism base from Latin America helped it retain its No. 4 spot.
• Atlanta jumps onto the list as No. 8 with major new infill retail projects attracting luxury retailers.

“Luxury is in each detail.” – Hubert de Givenchy

Luxury retailers value quality over quantity when it comes to their global footprint. The mature and stable nature of the luxury market allows these brands to be laser-focused on building growth organically, and targeting flawless locations for their flagships that are increasingly clustered in cities with similar consumer characteristics. The majority expand through carefully company-owned strategies that enhance the brand and keep it intact.

“The luxury sector has several different levels and dozens of brands that range from aspirational to prestige, but what they all have in common is a narrow scope and impeccable quality. Mainstream and mass marketed is not their target,” said Michael Hirschfeld, Executive Vice President of National Retail Tenant Services for JLL. “Luxury retailers tend to prefer larger metropolises benefiting from high tourism flows, often clustered within a defined luxury trade area, which comes at a hefty price.”

“Quality is remembered long after the price is forgotten.” – Gucci Family Motto

The most prestigious retail locations in the world command super-premium rents, and the scarcity of the supply in core markets is expected remain. In the United States, Upper Fifth Avenue in New York tops the tables with headline rents reaching up to $3,500 per square foot, followed closely by Los Angeles ($1,100), San Francisco ($650), Honolulu ($580) and San Jose ($480). But to luxury retailers, a flagship isn’t just a point-of-sale – it’s a branding play and there’s a willingness to pay top dollar for the right space.

If a luxury retailer wants to expand its reach beyond physical store footprints in select, niche markets, an integrated omni-channel platform is their best bet, according to Houman Mahboubi, Executive Vice President of Retail for JLL, based in Beverly Hills. Today, e-commerce accounts for just six percent of global luxury brand sales, but by 2020 that is expected to grow to 18 percent as these retailers gain global appeal.

Mahboubi added, “We expect luxury retail to be less impacted by pricing pressure as a result of increased online sales than commodity retail. While sales channels will continue to be digitally influenced make no mistake – physical space will remain fundamental even if it’s at a premium cost. Luxury retailers’ store space is an extension of their branding.”

The global luxury market weathered the recession well; however, it is not immune to global economic conditions. “U.S. cities offer luxury retailers tremendous brand exposure and access to a sophisticated local and international consumer,” concluded Jaggi. “U.S. cities are an opportunistic play – the country has a vibrant and healthy real estate market with room to grow.”

JLL’s new report, Destination Retail 2016, examines the presence of 240 international retail brands across 140 retail cities, giving insights for international retail expansion. The 140 cities make up 36 percent of the world’s GDP, 13 percent of the global population and 33 percent of total consumer spending. In today’s increasingly global retail market, international expansion is becoming a focus for JLL retail clients, as they seek sustainable growth.  To learn more, register to receive JLL’s full Destination Global Report: http://bit.ly/DestinationGlobalLandingPage

[1] Bain & Company