* Prime rental values have doubled in five years
* LVMH, Richemont, Hermes and Prada buying buildings
* Demand increasingly concentrated on key locations
* Property bubble could develop, says consultant
By Astrid Wendlandt
PARIS, March 19 French luxury group LVMH
is trying to push out smaller rivals from plush Place
Vendome in Paris after buying one of its highest-profile
buildings, illustrating the intensifying battle for Europe's
prime retail locations.
Cash-rich groups such as LVMH, Richemont and Hermes
have been stepping up property investment in key
fashion capitals, buying entire buildings to lock in premium
sites for which prices and rents are rising fast.
LVMH, owner of jewellers Fred and Chaumet and fashion label
Louis Vuitton, had 3.2 billion euros ($4.46 billion) of cash on
its balance sheet at the end of last year and Cartier owner
Richemont had 2.4 billion euros of disposable cash at March 31.
In the face of that kind of firepower, prime window space in
the likes of Paris, London and Milan could be pushed beyond the
means of smaller brands such as Buccellati, the family-run
Italian jeweller favoured by aristocrats and Hollywood stars.
Buccellati says it has been asked by LVMH to vacate No.4
Place Vendome by the end of June, three years before the end of
"This is our most important shop window," said Buccellati
Chief Executive Thierry Andretta, adding that it had been
renting the building, one of the most visible on the elegant
18th-century square, since 1979.
"We will fight to stay," he said, adding that lawyers had
LVMH acquired the building for more than 200 million euros
in 2011, based on market estimates, and says it is exercising
its right to give notice if it is to refurbish the property.
"LVMH has until May to ask for a construction permit," a company
The group has already removed a small fashion boutique and
antique jewellery shop from the building in the past year and
has also asked Italian jeweller Damiani to leave when
its lease runs out in 2016.
"LVMH is asking us to leave, but we would like to stay as
this shop is very strategic for us in terms of image and sales,"
said Mario Gilardini, Damiani's head of worldwide sales.
Damiani, Buccellati, Richard Mille and other tenants have
already lost a degree of brand visibility on Place Vendome,
their signage eclipsed by the huge advertisement for J'adore
perfume - made by LVMH's Dior - now emblazoned across the
It is difficult to quantify returns on such properties
because the investments are also aimed at preserving and
nurturing a luxury brand's image, but they make an undeniably
significant contribution to overall sales.
LVMH does not release figures for individual outlets, but
Exane BNP Paribas analyst Luca Solca estimates that its Louis
Vuitton store on the Champs Elysees has sales in line with a
hypermarket, at 250-300 million euros a year, while other
analysts say it could contribute 13-15 percent of the brand's
total sales in France.
But sales are only part of the equation. Real estate experts
say that average rental values in the likes of Place Vendome in
Paris, Bond Street and Knightsbridge in London and Via
Montenapoleone in Milan have doubled in five years to between
12,000 and 15,000 euros per square metre.
"Considering how much cash big luxury groups have on their
balance sheet and interest rates being so low, it makes sense
for them to buy key locations in established markets when
specific opportunities arise," said Bernstein luxury goods
analyst Mario Ortelli.
LVMH, which also spent about 300 million pounds ($499
million) in 2012 to buy several properties in London's New Bond
Street, is by no means the only big luxury group on the lookout
for property deals. Richemont spent $380 million in 2012 to buy
the St Regis hotel on New York's Fifth Avenue.
Both Richemont and LVMH have created specialist business
units to make high street acquisitions. LVMH declined to comment
on its real-estate strategy, but a Richemont spokesman said that
the Swiss group does not intend to ask the New York property's
existing tenants to leave.
Hermes, meanwhile, bought its Beverly Hills store for $75
million last year, having beaten Chanel to a 75 million pound
deal for the New Bond Street store of British jeweller Asprey in
Even Prada, which mostly leases its property, is getting in
on the act, buying several buildings on Old Bond Street for more
than 130 million pounds last year.
The smaller players are also in danger of being squeezed out
of the leasehold market for prime window space. Prada recently
fought off competition for stores in Geneva, Zurich and Milan by
offering advance cash payments of 20 million euros or more,
according to a real estate adviser with first-hand knowledge of
"Prada is confusing the market with its big cheques," the
adviser told Reuters.
Such muscle-flexing has leaves smaller luxury brands
struggling to secure suitably prestigious premises.
Longchamp, one of the fastest-growing French handbag makers,
acknowledges that finding good locations has become a challenge.
"Demand has become increasingly concentrated in certain key
areas, which means that opportunities are rare. And when they
become available, they go to the highest bidder," Chief
Executive Jean Cassegrain said.
The big question for all involved is whether the bull market
for prime retail locations could overheat.
"There are signs of a bubble right now in the European
market," said Marc-Christian Riebe, chief executive of retail
property consultant The Location Group.
"If the Chinese stopped buying watches and jewellery in
Paris and Lucerne, I think jewellers and watchmakers would have
to renegotiate their lease contracts."
($1 = 0.7180 Euros)
($1 = 0.6008 British Pounds)
(Additional reporting by Pascale Denis in Paris and Silke
Koltrowitz in Zurich; Editing by Mark John and David Goodman)