- 15 Mar 2014 8:00 AM
The first luxury retailer to open a store on Andrássy was Ermenegildo Zegna in 2005, with a real breakthrough happening in 2006 when Louis Vuitton opened its flagship store next to the Opera House,” writes Benjamin Perez-Ellischewitz, investment director of Jones Lang LaSalle in his analysis “High Street Retail in Budapest.”
Since then, the stores of the great fashion houses have been appearing one after the other along the inner section of Andrássy Avenue: Burberry, Gucci, Zilli, and Dolce & Gabbana soon followed the two trailblazers. In terms both of size and elegance, the ‘non plus ultra’ of luxury stores today is the recently opened Il Bacio di Stile, a 5,000 sqm multi-brand department store. Il Bacio opened in a national monument building, originally a luxury residential palace, refurbished in a most elegant fashion, harmonizing the historic interior with superb solutions of modern design.
Perez-Ellischewitz says he can see two potential paths of development for Andrássy Avenue as a fashion street. One points in the direction of artisan luxury shops such as those of watch manufacturers Breitling or Franck Muller.
The alternative is the appearance of giant stores, where one brand buys an entire building and converts it into a multi-storey department store. In terms of size, the Parisian Department Store at Andrássy 39 could be added to the second category, although in that case the conversion has restored the building to its original function (the Parisian was constructed as a purpose-built department store in the early 1900s).
The opening of an old-new five star hotel will certainly further enhance the luxury character of Andrássy’s inner section. After ten years laying vacant and several ownership changes, the purchase of the former Ballet Institute, originally the Drechsler Palace at Andrássy 25, was recently announced by Zara Hotels; the new owner is intent on refurbishing the prominent building opposite the Opera House as a 198-room luxury hotel.
The shadowy side of the luxury street
If one takes a stroll on Andrássy Avenue, however, one can observe a conspicuous number of vacant stores. “The vacancy rate of Andrássy Avenue retailers is fairly high; in October 2013 it was 12%,” notes the Jones Lang LaSalle report. The inner section of the avenue houses 105 retail units. Of these, 13 were vacant last month. More importantly, there is a heavy fluctuation among the occupants.
“A few brands that entered Andrássy Avenue did not meet their turnover expectations and decided to exit – either the luxury street market or the entire Hungarian market,” the manager of one of the recently closed stores told BBJ. “Brand stores often change neighborhoods,” the manager added. MaxMara, for example, closed its boutique in Andrássy Avenue, and reopened in Deák Ferenc Fashion Street in a space refurbished by star architect Erick van Egeraat.
As Perez-Ellischewitz writes, the Budapest high street market can be divided into three segments: luxury, premium, and mass categories. The three types of stores tend to be spatially separated, concentrating in three distinct zones: the luxury brands on Andrássy Avenue, the premium brands in the Fashion Street section of Deák Ferenc Street, and the mass brands on Vörösmarty Square and the adjoining Váci Street. The high degree of fluctuation along the high street end of Andrássy Avenue suggests that some stores may eventually find the other two zones better fitting for their profiles.
“Interestingly, although Váci Street and Vörösmarty Square are mainly occupied by mass brands, the highest rental levels are recorded here,” Perez-Ellischewitz writes. The analysis explains the very limited number of vacant units – a mere 5% vacancy rate – by the fact that the above locations offer a high number of smaller-size units that are hard to find in Andrássy Avenue and Deák Ferenc Fashion Street. “Because of the typical Hungarian shopping habits, retailers in Budapest prefer to rent bazaar-size shops,” a store manager who declined to be identified commented to the BBJ.
An “under-positioned” location can be just as disastrous for a luxury store as an “over-positioned”site for a mass brand. The Váci 1 project, developed by ORCO on the corner of Váci Street and Vörösmarty Square, may be cited as a sad example of the underpositioning. After a high-quality refurbishment, the building at Váci 1 was opened in 2010, but it still stands vacant with the exception of its four ground-floor units.
Il Bacio di Stile: A “fascinating retail scheme” in Hungary
“György Gattyán, the 16th richest person in Hungary, acquired his fortune from operating web pages that offer adult entertainment online. By opening his stylish department store Il Bacio di Stile on Andrássy Avenue, he may have had the aim of ennobling his original reputation. “Money does not matter at this investment,” the businessman who owns three-quarters of the HUF 5 billion investment declared. To be sure, he does not expect short-term returns from his money.
Tamás Magyari, the minority owner of the enterprise, paints a subtler picture: “In the case of the luxury market, supply must not be dictated by demand. However, today’s supply seriously undervalues Hungarian customers.”
Il Bacio di Stile opened its doors on September 8 this year. Magyari, as owner of the project, acted as a master franchise, in most cases, purchasing sales rights of as many luxury and premium brands as possible, including Giorgio Armani, Bottega Veneta, Lanvin, Valentino, Oscar de la Renta. As the LaSalle report put it, “without a doubt, the project became the most fascinating retail scheme in Budapest and most probably in Central and Eastern Europe.”
Published on XpatLoop.com with the permission of Budapest Business Journal