The New Retail World Through Charles Darwin's Eyes

Capturing global discretionary retail spending during the pandemic was like sport. Money flowed freely. Today that flow has been arrested due to inflation and current cost of living pressures which are rampant in the developed world. As a result discretionary spending has shrunk and is tight.

As a backdrop to this there is a societal split and we have two groups which we commonly refer to as the “haves” and the “have-nots”. These groups exist because the overall wealth is not evenly shared. This incredible movement of intergenerational wealth has not been seen before, where a parent’s death is no longer the main reason to receive a financial advantage. When you have available money and an appetite some clever retailers are keen to meet you. Some of those retailers dominate their sector but just a small few control the market. Let’s take a look at the successful strategies in a market with mixed consumption capacity.

"This incredible movement of intergenerational wealth has not been seen before"

When Amazon introduced the world to online retailing it would end the reign and domination for the successful Australian, Lowy family and their world class, physical shop environments. The mall developer and investor saw the writing on the wall and sold their UK and USA shopping centre assets to Unibail - Rodamco. That was 2017. Effectively a large chunk of the retail marketplace is now on your computer and the beneficiary of real estate is the industrial market where land is cheaper than office and building roof heights are becoming taller, as square meterage makes way for cubic capacity.

"Effectively a large chunk of the retail marketplace is now on your computer and the beneficiary of real estate is the industrial market"

With online success under its belt, Amazon had the audacity to experiment with physical real estate opening 66 book shops across the USA, starting in Seattle in 2015. This would be the ultimate insult to real estate owners, similar to a reverse takeover. Amazon’s model was to only offer 4 star rated or better books and so the store became less of a browsing, reading and social experience and more of a populist, quick-fix supermarket.

By 2019 Amazon decided to close its then 68 stores. What Amazon misunderstood was that bookstore customers are generally educated and interested readers. They are not fast buyers but rather discerning buyers. Amazon's offering did not suit this customer, who still remains an active consumer.

Retail is tough and when I revisited the Amazon bookstore at the busy Columbus Circle in NYC it was available for lease last year and still is in 2024. That’s 5 years of vacancy. Perhaps the Columbus Circle owner might have been better off keeping the space active than having a vacancy which doesn't help the retail experience.

Ex Amazon Bookstore Columbus Circle, NYC

In another case of shifting sands, people might recall the outrageous statement by McDonalds chief, Ray Kroc in 1956. He said “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.” Who knew that the cheap fast food operation was simply an excuse to own and control the land? Whilst fundamentally true then, that too has changed and the larger land by the side of a well trafficked road with a convenient on-grade car park might have been sold and the store may now sit in a shopping centre or at an airport. Perhaps real estate isn’t their only business anymore and they are truly a food franchisor.

The key to selecting well located retail has always been to track pedestrian movements. To find the “ant track” where people walk, where they commute, where they are going. That’s always been the real estate investors’ focus but that’s now changing.

"The key to selecting well located retail has always been to track pedestrian movements... but that's now changing"

I’ve been looking at the approach which Louis Vuitton has taken and you will be surprised. The learnings date back to its Chair and dominant shareholder, Bernard Arnault, the richest man in the world working in his father’s real estate development business during the 1980’s. He understood development and the need to control locations where there is potential locational goodwill. Locational goodwill is a value which can be specifically applied to a location. The best example would be a kiosk at a beach where no other retail space exists. That kiosk can control the supply and pricing of goods which beach goers need or want, like drinks, sunscreen, hats, food etc.

Now that LVMH controls over 75 brands they can create their own environment. They are now looking at building a neighbourhood or precinct around their retailers. Effectively they are the anchor occupier, the attraction piece to the future marketplace. Imagine a Louis Vuitton store next to Christian Dior, Tiffany’s, Bulgari, Loewe, Celine, Fendi, Kenzo, Givenchy, Marc Jacobs and Sephora. Now contemplate when one operator controls the destiny of all these operations.

Louis Vuitton Window Display, Paris

Picture a beautiful department store called La Samaritaine. This store has re-opened near the Louvre and is magnificent. It forms part of LVMH's ownership of a much larger integrated retail, hotel, social housing and childcare project. How did I find it? Well it was recommended to me by friends who felt I should experience something special in my world of real estate. What did I do? I had lunch there and bought things I have not seen before.

La Samaritaine Department Store, Paris

The development around Paris is part of LVMH’s $2 billion spree on showcasing their brands for the Paris Olympics in July this year. La Samaritaine department store is part of a development which includes their 5 star hotel, Cheval Blanc. It also offers a children’s daycare centre and 96 public housing apartments.

Render of Louis Vuitton's new hotel in Paris  |  Source: Louis Vuitton

The Wall Street Journal has run a story titled “The Luxury Titan Changing Cities”. In this article it references Michael Burke, who is head of LVMH Fashion Group. He’s worked with Chair, Bernard Arnault since the 1980’s and is a real estate and fashion expert.

He said “All roads lead to real estate” and “Bet on in person retail versus online”. Burke sees the future of retailing as more like an understanding of urban habits. “We make handbags, we’re Vintners, it all sounds like a hodgepodge. However, it all makes sense when you say we are urban planners. Good planning is taking all aspects of life and lifestyle and bringing them together in one place”.

We are urban planners. Good planning is taking all aspects of life and lifestyle and bringing them together in one place” - Michael Burke, Head LVMH Fashion Group

LVMH is focused on Paris where it has spent $2 billion on real estate, Fifth Avenue New York where it has spent ~$700m on upgrading the Louis Vuitton and Tiffany’s stores, on opposite corners and is in talks with acquiring more property close by. Burke sees similar opportunities in Miami and Montreal.

“We are creating a city. If we don’t have the competitors, we don’t have a new city.”

Finally, LVMH is well positioned to take advantage of the socio-economic change we now see in the world with those with money versus those without. New millionaires are cropping up all the time and this money finds the opportunity to buy limited edition or limited supply discretionary goods as aspirational and compelling.

In my view LVMH’s model is futuristic and it will work. Anything which brings community and experience together is exciting and human beings crave excitement. Town Planners and governments would be well advised to bring this future thinking to bear on their antiquated zoning maps and start thinking in the third dimension and not 2D as our current planning maps indicate approved land use.

"Town Planners and governments would be well advised to bring this future thinking to bear on their antiquated zoning maps and start thinking in the third dimension"

In Charles Darwin’s observations, creatures either adapted or died. In retailing the model is changing and no longer can we think about a strip of shops having a value to a community as it once did. If the strip shops next to you contain a bank, newsagency, bottle shop, 4 cafes, 6 real estate agencies and an opportunity shop it’s withering on the vine and ready for a complete haul over.