Written by: Tim Gosling
Photo by: Tomáš Kubeš
In a market where luxury brands are a relative novelty, and the average income still falls well below that of western Europe, how do retailers of the world’s most prestigious names fare? Reactions are mixed, but optimism seems to prevail.
WHILE THEY CLAIM a steady rise in sales, the retailers of genuine luxury brand products are still finding progress sluggish since they arrived in Prague over the last decade. It’s perhaps not surprising then that relatively few of their peers have joined them in recent years, and that it remains a question whether the luxury retail sector in the Czech Republic’s capital will ever rival that of cities like Paris, London or Milan.
There are driving forces for the sector in Prague that retailers can observe and readily agree upon. Buying power is the most obvious factor, and retailers depend heavily on the income levels of wealthy locals and tourists. Indeed most of the outlets say they are dependent to a significant degree on the higher income of tourists and foreigners. However, they also say they are seeing more Czechs with greater spending power, which can only help the market.
On a related note, the importance of “location” in the luxury sector is particularly high. If one considers the significance of foreign spending power, then those locales most heavily trafficked by tourists are logically the most sought-after. Dior, the one new name to have arrived in the city in the last year, waited for about two years for the right space, according to Jana Maříková, manager of the Dior and Louis Vuitton outlets in Prague.
Yet retailers are quick to point out that store front locations and buyer income are not the sole issues; that there are deeper, subtler dynamics at play. Alison Pollitt, managing partner of Fision Group, who has worked in fashion and beauty retail in London and Prague, claims that, “the psychology of customers here is different from more established markets”. Retailers and experts across the sector claim that this factor is as central to the development of the luxury brand market as any other. “It’s about accurately understanding what luxury is, which depends on experience and knowledge,” continues Pollitt. “It’s about the confidence of the customer, based on having choice and exposure via the shops, the fashion press and traveling.”
Given that just 15 years ago there was “no sense in thinking about brands here,” according to Tomáš Drtina, managing partner of Incoma market research, it’s little surprise that the market is relatively immature. Lucie Blažková, manager of design boutique Tatiana agrees that local consumers have pursued a steep learning curve since 1990. “At first they just needed to see and wear some of these styles because they were so different,” she says. “Then they started to look at the quality.” Which may make life tough for the brands right now, but at the same time gives merchants hope for the future, as they note changes in the appreciation of quality amongst their customers. Jitka Kocingerová of Lancôme joins the others in striking an upbeat note, saying that many wealthier people are becoming “more aware of luxury brands, more educated through the travel and access to more information”.
Jana Bloundová owns 5th Avenue, a chain that offers designer clothes (Armani, Versace, Chanel, etc.) imported from the US, where she ran boutiques for several years before returning to her home country. She says that she was motivated to come back after observing an evolution of the Czech market. “Five years ago I saw a big change,” she recalls. “People were making more money, traveling a lot and becoming more interested [in brand names]”. Still, more than one retailer notes that there is a big difference between the Czech and established markets in terms of perception regarding luxury and quality.
Mojmír Ranný, owner of Ranný Architects interior design, claims that some brands regarded as “luxury” in the domestic front are seen very differently elsewhere. Pollitt suggests that these are natural steps in any market, and points out that it is financially and psychologically impossible to leap directly from what is essentially a developing middle market to the most exclusive designer brands. In short, streets like Na Příkopě, for instance, with its array of high street brands, don’t just emerge overnight.
In many ways, the exclusivity of the brands holds back this development. A key factor in the education of customers, suggests Pollitt, is in the variety of products in the stores. However, she says that the exclusive brands in Prague tend to stock the smaller, lower cost items rather than the full ranges, because these are what locals with lower purchasing power and tourists with suitcases to lug to the airport tend to buy.
Advertising and the fashion press also play an important part on the market’s development. Tomáš Kozák, planning manager for OMD media buying agency explains that because the target audience for luxury brands is so small in the Czech Republic, the most effective way for these brands to market themselves is to bypass the mass media and communicate directly through high-profile events or personal contact. Anastasia Tejnorová and Jana Semerádová, managers of Escada’s Sport and Classic outlets respectively, confirm that after trying many different methods of advertising throughout the years they now mostly depend on just such tactics. The issue here is that this removes luxury branding from the mainstream to some extent, thus possibly overlooking those that are not so active in following trends.
Drtina’s opinion is that “the generation that has been fully hit by advertising since 1990 recognise the brands.” Indeed, most retailers assert that they are seeing more independently wealthy young career women in their stores, and that this could be good news for luxury brands in the future. For now however, high-end retailers may have to wait for the trend to become more pervasive. Barbora Bergová, manager of Malo and Francesco Biasa, notes that the local consumer segment with the most purchasing power is “the generation of Czechs over 40,” and adds that these potential customers “tend to have different priorities and values in what they spend their money on.”
For the second year running, the rental prices on Na Příkopě are 18th highest in the world according to Cushman & Wakefield Healey & Baker’s (C&W H&B) “Main Streets Across the World 2004″ report. Retailers pay through the nose for the sheer amount of feet walking through Prague’s “mass-market shopping destination”.
The luxury brand “destination” however is Pařížská, in the city’s center, where rental fees go for around half of those found on nearby Na Příkopě. “If someone wants to go for exclusive shopping in Prague then they immediately think of Pařížská: it’s the destination,” says Martin Žížala of C&W H&B. And this makes it a popular spot. “Any developer would [love to] get their hands on a property on Pařížská,” continues the retail agent. The street offers an exclusive experience for shoppers: “The space in itself is a luxury,” suggests Alison Pollitt. The elegant, portly, tree-lined avenue offers parking outside the parade of generously proportioned brand name stores who cluster there to share the customers.
|The tourist paradox Prague’s historic atmosphere makes it an attractive backdrop for high-class shopping. It would seem that luxury retailers would have the ideal opportunity to take advantage of custom from overseas visitors, but the reality is more complex. Tourism undoubtedly plays its part in the turnover of luxury goods in Prague, and part of this is simply because visitors’ spending habits are different from those when they are at home. “When people go on holiday they are less conservative in their spending,” says Tomáš Drtina of Incoma market research.
Tourist spending is focused particularly on smaller items, and according to Barbora Bergová, manager of Malo and Francesco Biasa, an Italian producer of leather goods and accessories, tourism makes up 50% of the firm’s sales. Jana Maříková, who manages the Louis Vuitton and Dior outlets in the city, expresses a similar opinion. “Over 50% of our customers are Czech. The rest are tourists of all nationalities,” she notes.
Where these tourists will stay has been an important issue especially over the last few years, with a number of upscale hotels opening in the centre. “Now that we are in the EU I think we will see more tourists with more purchasing power coming in,” predicts Maříková.
Despite these trends, tourism’s impact should not be exaggerated. Prague may have a range of luxury shops, but it does not have the status of London or New York as a prime shopping city and probably never will. Especially from a fashion point of view, it is definitely still not a priority destination. “Prague is a beautiful city, but people don’t have a reason to come back here,” says Bergová. A key reason for this is simply that there are more obvious fashion centers. “European tourists are not returning to Prague for fashion buying because the places to buy are Paris, Rome and Milan, where there is a better choice,” she adds. LV’s Maříková sums up the situation: “Tourists are very important for us – but I still think we would be here without the tourist market.”
Even if tourism became more important to the luxury goods sector in Prague, the profile of the typical tourist coming here is changing. Prague has now become a favorite destination for low-cost airlines, and as a result it is becoming perceived as a less “elitist” place to visit. “Over the last three years, the tourists who have been coming here definitely do not belong among rich ‘big spenders’,” Bergová points out. “Prague has slowly become a place for low-price excursions.”
Czech purchasing power stands at around 60% of that in western Europe, according to Tomáš Drtina of Incoma market research agency. Figures for 2003 from the Czech Statistical Office show that disposable income continues to rise (+5.6%), and that the rise in consumer expenditure matches (+5.5%). However, this is not all good news for luxury retailers.
The number of people with very high incomes remains low. Without comprehensive figures, most commentators estimate between two to five percent of the population earns enough to shop at luxury brand stores. Jitka Kocingerová of Lancôme agrees: “The amount of people who can afford [luxury brands] is [still low]”. Jana Maříková of Louis Vuitton and Dior admits that she’s in “a risky business, because it’s luxury items that are cut from people’s budget when there [are problems].”