Luxury retail isn’t what it used to be, from Barcelona to Hong Kong.
In Barcelona, frantic backroom haggling is taking place between some of the world’s biggest luxury retailers and the owners of some of the city’s most expensive commercial real estate. That real estate is on Passeig de Gracia, a ten-block avenue that is home to two of Antoni Gaudi’s most emblematic buildings, La Pedrera and Casa Batllo. It is currently Spain’s third most expensive shopping street, having lost the top spot to Av. Porta de l’Angel (also in Barcelona) and Av. Preciados (Madrid).
Two months ago, renting a street-level store on Paseo de Gracia would have probably set you back around €3,000 per square meter. But that was before the arrival of Covid-19, when the street was teeming with international tourists, including deep-pocketed, big-spending visitors from China, Japan, South Korea, Russia and the Middle East. Today, after more than seven weeks of draconian lockdown that is only now beginning to be relaxed, there are no tourists, the street is half empty and almost all the shops are closed.
Even when the shops are finally allowed to reopen, their biggest customers — those big-spending, deep-pocketed tourists — will be nowhere to be seen. Hence the frantic behind-the-scenes haggling.
A source who is familiar with the situation told me that some of the luxury brands have made their respective landlords a brutal ultimatum: either reduce the rent by 75% or tie it intrinsically to the sales generated by the store, which right now is essentially zero. Otherwise, they will shut the shop.
The property owners, who predominantly consist of descendants of late 19th or early 20th century Catalan industrialists — what remains of the so-called alta burguesia Catalana — may have little choice but to accept the offer, or some slightly improved version of it. Retail landlords all over Europe are already seeing their rents plunge, albeit not by as much as 75%. Some landlords have voluntarily allowed their tenants to skip rent payments if the lockdown prevents them from operating. Others are desperately chasing payments and threatening their tenants with legal action.
They include UK mall giant Intu which was already in dire enough straits before the virus crisis began, forcing most of its tenants in the UK and Spain to temporarily close their stores. As of four days ago, it had only managed to recover 40% of its rents due on April 1. Among the retailers that are refusing to even engage with Intu “to find a consensual solution” are “a number of large, well-capitalized brands who have the ability to pay but have chosen not to,” the company said in a statement.
In Hong Kong, which is famous for its luxury retail, some luxury retailers have given up trying to renegotiate their rents altogether and are now staging a gradual retreat. Even before Covid arrived, the pro-democracy movement had scared away many mainland Chinese tourists, who were the mainstay of Hong Kong’s huge luxury goods sector. Covid did the rest. By late January, with most of the city’s borders with the mainland closed, visitor arrivals had slumped 97% year over year to just a few thousand a day.
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