Gucci and Prada now own their buildings. What’s their plan?
Previewing retailers’ plans after their recent spate of real estate purchases
Jun 3, 2024, 7:00 AM
Dozens of people are waiting in line in front of Tiffany & Company on a Friday morning in May, a year after the jewelry giant reopened its Fifth Avenue flagship with a new name: the Landmark.
Tiffany owns the building, which endured a four-year renovation to become its new self. Inside, there is jewelry, of course. There’s also now a Daniel Boulud restaurant, the Blue Box Café, and some of the line-waiters are confirming their reservations.
Three floors that were previously offices add to the square footage for selling baubles and for displaying a collection of artwork — Damien Hirst, Julian Schnabel — some of it commissioned by Tiffany itself. Intricate architectural details like the spiral staircase with delicate glass-like spindles reflect the designs of Elsa Peretti, the store explained in its relaunch press material.
Tiffany has held the deed to 727 Fifth Avenue since 1999, so it has a 25-year head start on a post-Covid trend in the luxury retail industry: buying top-of-the-line space for your brand. Its over-the-top renovation gives a sense of why owner-retailers are competing to own on the avenue.
“None of them want to be still standing when the music stops and they don’t have a home for one of their brands,” said CBRE’s Andrew Goldberg.
Amid a high-end retail rebound that would have been hard to predict a few years ago, brands are now competing to shore up their real estate assets. Just in the last six months, Kering, Gucci’s parent company, and Prada have snapped up properties along Fifth Avenue.
Chanel and Tiffany & Company’s owner, LVMH, are also reportedly exploring deals nearby. With a limited number of premier properties along the avenue, brands are often vying for the same spaces in an effort to cement their flagships in one of the most sought-after shopping districts in the world. And once they find their deals, players are likely to continue an arms race of buildouts that do their best to redefine what luxury is, establishing permanent legacies on Fifth Avenue at a time when the corridor is one of the most expensive areas to rent.
A prime closet
Luxury houses aren’t new to owning or having a presence on Fifth Avenue and its global equivalents, but what makes the recent deals significant are the vast sums involved.
Prada paid $835 million for 724 and 720 Fifth Avenue in December. The seller was Jeff Sutton of Wharton Properties, who declined to comment on the reasons for the sale. About a month later, Sutton and SL Green, a minority owner, sold the retail portion of 715-717 Fifth Avenue to Kering, which doesn’t currently have brands in the space, for $963 million — four times what Sutton paid when he bought out partners at an unclear date in the 2000s or 2010s.
Prada and Kering didn’t respond to requests for comment on the transactions.
“We can only stand in awe when we think that LVMH secured a building next to its 57th Street store for $60 million in 2007,” wrote Luca Solca of Bernstein in a recent report on luxury goods retailers and their real estate strategies. “That seemed a lot back then.”
“I don’t think people fully comprehend the importance of being at a very specific micro-location, how a few hundred feet in any given direction is the difference between prime and irrelevant.”
He noted that Centurion, which sold to LVMH, had paid just $28 million three years before. That “looks like a laughably small amount today,” he added.
The skyrocketing price comes as retailers home in on a small number of thoroughfares where they want to be.
“I don’t think people fully comprehend the importance of being at a very specific micro-location,” said Will Silverman, a managing director at Eastdil Secured, which represented Sutton on the Prada and Kering deals. “How a few hundred feet in any given direction is the difference between prime and irrelevant.”
Bernard Arnault, the CEO of LVMH, gets it. The conglomerate behind Tiffany’s, Louis Vuitton, Dior and dozens of others had made €2.4 billion in real estate property investments as of January, including a $22 million East Hampton property embarking on its second summer season.
LVMH may be looking for more: It may be exploring a purchase of 745 Fifth Avenue, home to the Bergdorf Goodman’s men’s store, the Wall Street Journal reported this year. Chanel is reportedly also vying for the department store’s property, a person familiar with the matter told Bloomberg. LVMH and Chanel did not respond to requests for comment.
“We’re trying to secure and to buy the best possible locations for our companies — AAA locations,” Arnault said by way of explanation during a January earnings call.
Why now? Before the recent slew of acquisitions, the fate of retail and real estate was in question as Covid policy ravaged in-person shopping and e-commerce reigned. Yet consumers still wanted to spend, it turned out.
“If there were ever a moment that they were going to buy, it would be now,” said Silverman.
The experience of glamour
Consumers coming to Tiffany and to other luxury brands’ holdings — leased or owned — want more than jewelry, bags and sweaters. They want an experience.
The lavish spaces are important to a new generation of consumers who can “signal on their social media feeds, on their TikTok accounts that they are in the know and in with these luxury brands,” Rebekah Kondrat of Rekon Retail said. “So having an environment where you can do that is pretty critical.”
The elaborate multilevel flagships are attractive to those truly at the pinnacle of wealth — the celebrities and royal families of the world. One way luxury stores can attract those individuals is with a robust amenities package, from special dinners to VIP trunk shows.
This preference is also why brands aren’t just building shelf space but also adding event rooms for hosting parties, exclusive meetings and conversations with designers for special customers, Kondrat said.
“None of them want to be still standing when the music stops and they don’t have a home for one of their brands.”
It’s yet to be seen how Prada and Kering will design the spaces that they now own on Fifth Avenue. None of the retailer-buyers responded to emails asking for details about their plans for the spaces, and it’s likely that buildouts in spaces they own will be a lot like buildouts in spaces they rented — just without the feeling of being held hostage by their landlords.
Other heritage brands’ flagships, even those smaller in scope, may offer a clue.
The Tiffany building is one example. Poltrona Frau, the high-end Italian furniture brand, is another. It opened its flagship this year in the landmarked Madison Belmont Building.
Though it’s not on Fifth, Poltrona Frau’s aim with its space is to inspire: both its existing clientele and nonbuyers who walk by or come in.
“I don’t want just another furniture store, I want a place where people would like to come and spend also some time,” CEO Nicola Coropulis recalled telling architect Michele De Lucchi, who led the renovation, which took just under a year to complete.
The focal point of the 19,000-square-foot showroom is a sculptural wall in a rainbow of colors. It’s both decorative and functional: What at first look like colorful decoration are in fact fabric swatches for shoppers to remove and study next to pieces of furniture on the floor. A hanging installation by Italian artist Daniele Papuli and a floor-to-ceiling Sahrai rug elevate the store’s design.
Fifth Avenue and beyond
Poltrona Frau is on Madison Avenue and 34th Street, not exactly a locale for Prada.
It’s unclear to what extent the top luxury companies will move off of Fifth. LVMH and others have been eyeing and purchasing properties not only in New York but on London’s Bond Street, the Champs-Élysées in Paris and other desirable strips. In 2023, luxury retailers spent a total of around €6.6 billion — about $7.17 billion today — globally on real estate transactions, while the brands invested €1.07 billion —about $1.16 billion today — the year before, according to a Bernstein analysis.
And while the limited number of remaining properties available on Fifth Avenue are likely to be attractive to the LVMHs of the world, Jason Richter of Capricorn Retail Advisors thinks other retailers might buy up other prime locations in New York with prototypical architectural details and high foot traffic, whether they’re on Madison Avenue, in Soho or even in the Meatpacking District.
“You’re taking real estate off the market, likely forever,” Richter said of the larger-than-life luxury retail transactions. “And that will in many respects increase demand.”
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