Why Luxury Groups Shouldn’t Rule Out Store Closures

With growth through store expansion a thing of the past, Burberry has pinned its recovery hopes on a plan to boost the performance of its existing retail space. Management said in May it expected productivity improvements in stores to account for half of top-line growth over the next three years while e-commerce will account for another third. French luxury group Kering has laid out similar ambitions for its Gucci brand, which has failed to grow as fast as peers in recent years. They will be swimming against the current. Bain expects single-brand stores, which currently account for 29% of industry sales, to dwindle in importance with subpar growth of 1% a year over the coming half-decade. That looks particularly meager when set against warnings of rising property costs made by Burberry and others. So far, the only brand to have announced store closures is Ralph Lauren. Stefan Larsson, the 41-year-old Swede hired by the eponymous founder last year to rejuvenate the aging brand, plans to shutter about one-tenth of the outlets. Other companies have stopped or abruptly slowed their store-opening programs, but often point out that even outlets in Hong Kong—the market most affected by the current luxury downturn—remain profitable, partly thanks to turnover-linked rents. Read more at The Wall Street Journal.