Brand Boulevard’s rents don’t drop
Although consumer confidence nationwide is still frozen, on Cheongdam-dong the thaw is obvious as global luxury brands return to a home they temporarily abandoned.
Burberry plans to open a flagship store next year on Cheongdam-dong, and Christian Dior is renovating its store for a reopening next year.
Cheongdam-dong was unusually crowded on Oct. 31 as people trying to get into the first store of Abecrombie and Fitch (A&F), the famous U.S. casual brand, waited in a queue more than 100 meters (328 feet) long. A&F fashions were as popular among Korean consumers as Polo’s even before they were officially imported to Korea.
“I don’t know if it was just a one-off event due to curiosity about this brand’s specific marketing strategy of having bare-chested male models stand in front of the store to have their pictures taken with customers,” said the owner of a nearby building. “But it was good to see the hustle and bustle of the crowds. It was the most energetic it has been since the late 1990s.”
The very next day, Chloe, one of the luxury brands of Richemont, the France-based company that also owns such brands as Cartier, opened its first flagship store on Cheongdam-dong.
The remodeling of Christian Dior’s store is in full swing, and at the main Cheongdam-dong intersection, where a gas station once stood, a building is going up with a large Burberry ad on the construction site’s temporary walls. Burberry will open its first flagship store in Korea in the building in the second half of 2014.
Why are the European luxury brands that left Cheongdam-dong due to unbearably high rent prices coming back?
Kim Sung-soon, director of Cushman & Wakefield, the global real estate consultant firm that is working on the Burberry project, describes a kind of war between owners of local buildings and the brands.
“Since the global economic downturn, landlords in Cheongdam-dong and luxury brands have engaged in a war of nerves over rent,” said Kim. “The current situation is that the luxury brands have surrendered to landlords.”
The rent on Cheongdam-dong is lower than around Gangnam Station, which is about 2 million won ($1,884) per pyeong, or 600,000 won per square meter. But they’re still pretty high at 170,000 won per pyeong, or 500,000 won per square meter.
As luxury brands usually require a store bigger than 50 pyeong, or 165 square meters, they spend tens of millions of won on rent every month.
After the global financial crisis of 2008 and the economic recession that followed, brands asked for rent reductions but didn’t get them.
“Luxury brands were expecting lower rent prices, yet the landlords said they would never lower them below the standards they have set even if the buildings remained empty for years,” said Kim. “And the luxury brands gave in. The landlords of Cheongdam-dong are usually owner families of large conglomerates or people who own several other buildings in Gangnam. They are not easily threatened.”
A prime example is the Queen Building in the middle of Cheongdam-dong. In the past, Calvin Klein was in the building and since it left in the early 2000s, it has been empty. The problem was the high rent.
For Burberry, it was not easy to get into Cheongdam-dong. A nearby real estate agent said when the land under the gas station was on sale earlier, Burberry was interested but had trouble agreeing with the owner and his son over how much they’d pay in rent.
“Since the 2008 global financial crisis, the rents from Galleria Department Store to Cheongdam Intersection have actually increased,” said Real Estate Gallery CEO Baek In-beom, who specializes in commercial buildings in Cheongdam-dong.
Louis Quatorze, which has renewed contracts in the same building for 10 years, recently agreed to pay 1 billion won deposit and 30 million won in monthly rent for a 214.5 square meter, or a 65 pyeong, space.
Cartier signed a contract for a 1 billion won of deposit and 70 million won in monthly rent, but is reportedly paying 90 million won monthly at the request of the landlord. As luxury brands renew contracts with increased rents, the trend is rapidly spreading, says the real estate agent.
“Since rumors spread that A&F came in at a much higher rent than the market price, rents are expected to rise even more next year,” said Baek. “There are also rumors that the monthly rent for Cartier’s renewed contract in 2015 will exceed 200 million won.”
Why have the luxury brands, which usually have bargaining power at department stores, surrendered to Cheongdam-dong’s landlords? Analysts say it is because of Cheongdam-dong’s exclusivity.
Cheongdam-dong draws customers with purchasing power, the most important factor for a good commercial area.
“Hanyang Apartments and Hyundai Apartments in Apgujeong-dong, adjacent to Cheongdam-dong, is a typical upscale village,” said Kim. “It is not easy to find any other place where people with the purchasing power to shop at one luxury store after another are concentrated in such a scale.”
Second, it has a comparative advantage over Gangnam Station.
“It is true that Gangnam Station is Korea’s best commercial area with an overwhelming floating population,” said a spokesman for Chanel. “However, people who purchase luxury goods hesitate to visit crowded areas like that.”
Not only do they dislike bumping shoulders with the hoi polloi, they also prefer to be discreet about their own shopping habits.
“Gangnam Station is more preferred by SPA brands such as Uniqlo or Giordano,” said the Chanel spokesman.
Third is symbolism. Cheongdam-dong has been recognized as Korea’s finest retail street since the mid-1990s. Opening a store in Cheongdam-dong naturally produces the perception that it is a luxury brand.
“As with Avenue Montaigne in Paris or London’s Bond Street, being situated in Cheongdam-dong is a unique position that produces an enormous promotional effect,” said Seo Yong-gu, professor of business administration at Sookmyung Women’s University.
The revival of Cheongdam-dong occurred gradually since the second half of 2010 with the remodeling of Gucci’s store.
Gucci reopened its flagship store after 15 months of remodeling at the end of 2010, expanding the area by 50 percent and employing gorgeous golden glass materials.
Following Gucci, stores such as Ferragamo and Louis Vuitton also embarked on renovations. Shinsegae International, which retails Dolce & Gabbana and Giorgio Armani, also started construction of a new 15-story building near Cheongdam Intersection.
The revival of Cheongdam-dong was also partly because of Chinese tourists. Unlike Japanese tourists, who were the main customers for Cheongdam-dong in the past, Chinese tourists often arrive in eager groups of 20s on tour buses.
“On weekends as well as on weekdays, Chinese tourists come here steadily. They often shop as a family or a group of five or more, and they are not put off by high prices,” said Kim Tae-hyeong, manager at Cartier Cheongdam Maison Boutique.
Accordingly, luxury brands are now providing private spaces such as VIP room for Chinese tourists and hired Chinese translators.
“As Cheongdam-dong has emerged as a shopping mecca for wealthy tourists from Japan and China since 2010, it started gaining attention again,” said Kim Cheong-ho, manager for the local economy at Gangnam District Office. “Although the sharp decrease in the number of inbound Japanese tourists is affecting sales, the purchases by Chinese tourists are surging. We expect Cheongdam-dong will gain good growth thanks to Chinese shoppers.”
BY Yoo seong-un, KIM JUNG-YOON [email@example.com]