June 13, 2014
Luxury Shoppers, Homegrown and From Afar, Push Houston's High-End Retail Ever Higher
By David Kaplan
Karen Payne was in the Valentino store in Rome a few weeks ago, admiring a pair of black studded and heeled sandals. The stylishly attired salesman got excited when she mentioned that she lives in Houston.
"I want to work there!" the Italian told her. "I promise you, I'm going to find my way there. I'll get there somehow."
Houston, it seems, is officially on the map for luxury shopping.
"It happened so quickly," said Payne, a former fashion model and now a homebuilder. "But the luxury industry has decided to invest in Houston."
The Bayou City may not be on par with places like New York or Los Angeles in that regard, but it's on the way, said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm. He called the city an "explosive" area for luxury retail growth, fueled by its strong economy and status as an international hub.
At the city's epicenter for high-dollar shopping, the Galleria continues to expand its stable of upscale boutiques with iconic names like Louis Vuitton, Versace and Bulgari - elegantly furnished stores where handbags are displayed like museum pieces and the clientele hails from around the world.
Meanwhile, high-end options are spreading. Another luxury-focused center is coming next spring. The mixed-use development River Oaks District will feature Cartier, Dior, Hermes, Tom Ford and possibly other high-end retail.
"Houston is rising and high-end retailers are expanding, and the two forces are converging," said Ed Wulfe, chairman and CEO of retail development and brokerage firm Wulfe & Co.
The luxury retail market is expected to grow by 4 percent to 6 percent in the U.S. this year, and Wulfe expects the rate to be even higher in Houston.
Another indicator of Houston's growing stature in the luxury retail world is the increasing number of couture shows coming here, said local high-end shopper Brian Teichman. A few weeks ago, for example, Gucci set up a special couture collection, flown in from Italy, in its Galleria store. Houston was on a list of "select" cities, the retailer says.
The Galleria's focus also pays off for its owner, developer Simon Property Group. Lilly Golden, president of Evergreen Commercial Realty, said the Houston icon generates higher sales per square foot than any other mall in the Simon portfolio. Simon has an ownership interest in 156 malls and a total of 300 retail centers.
"The Galleria is one of our most diverse and fastest growing luxury destinations," said Vicki Hanor, executive vice president of leasing at Simon Malls.
The Galleria does $1.3 billion in annual sales and is one of the best performing centers in the world, she said, "and many of our luxury retailers have their No. 1 stores in their portfolio at the Galleria."
The mall is undergoing a renovation that will increase the size of its Saks Fifth Avenue flagship , convert the current Saks space into a 110,000 square foot luxury retail wing and add a standalone building nicknamed "the luxury jewel box" with even more high-end retail.
Hublot arrived at the Galleria last fall, joining the likes of Prada, Louis Vuitton, Jimmy Choo, Chanel, Versace, Gucci and Saint Laurent. Coming soon will be John Varvatos, Rolex, Tod's and Tourbillon.
Bulgari, which sells high-end jewelry, watches, accessories and leather goods, has three U.S. flagship stores, in New York, Los Angeles and San Francisco, but its recently renovated Houston store is "right there, too" in terms of its financial performance, said Alberto Festa, the company's president of U.S. operations.
He said Bulgari's Houston business is driven by the energy industry and tourists, including those from Mexico.
Galleria shopper Carla Vega flies with family members from her home near Mexico City five or six times a year "just to shop" at the mall, she said during a recent outing. A number of the stores she frequents have no locations near her home.
"It's comfortable," Vega added. Her family stays at a Galleria hotel and drops off purchases in their rooms.
Shopper Ghada Al-Subaey, who lives in Qatar, strolled the luxury wing of the Galleria with four other women, some toting Neiman Marcus bags. One of them has been getting treatment at the Texas Medical Center from more than a year, Al-Subaey said, and the women have been shopping at the Galleria two or three times a week during their Houston stay.
International flights bring many shoppers to town. In 2012, more than 250,000 Mexicans visited Houston and spent more than $211 million, the state travel research shows.
But Asian tourists also generate a significant amount high-end retail sales, Wulfe said.
Houston Realtor Kenneth Li said direct flights from Beijing, China, and Seoul, South Korea, are helping that number grow. He noted that a high luxury tax in China makes many upscale items relatively less expensive in the U.S.
Luxury retailers tend to locate in clusters, Golden said, which may explain why the Galleria continues to attract more high-end tenants.
Designer fashion store Tootsie's at West Ave is able to thrive outside of the Galleria/Uptown area because it is such a large scale operation and a homegrown brand, Golden said.
High-end retailers have established themselves in The Woodlands and other places.
"Luxury retailers are attracted to Houston due to its unprecedented growth and thriving economy," said Gregory Wattson, managing director of development at OliverMcMillan, developer of the River Oaks District planned on Westheimer near the West Loop.
"Houston is the largest and most diverse city in the nation with a population that recognizes global luxury brands," he said. " ... Add tourism from around the world and particularly Latin America and it emerges as a prime target."
River Oaks District
The 15-acre River Oaks District will have individualized storefronts with modern designs, a collection of restaurants featuring a dining terrace under a canopy of live oaks, wide sidewalks and curbside parking. It will feature 252,000 square feet of retail, 92,000 square feet of office space and 279 residential units. An upscale iPic theater also has been announced.
Wattson said the next release of tenant names "will further reinforce the attraction of Houston to global retailers."
River Oaks District could be going for the same feel as the successful Bal Harbour Shops, an outdoor shopping center in a wealthy part of Miami, Golden said.
Simon's Hanor said Galleria customers enjoy being in an air-conditioned mall.
Some like driving there in style, as indicated by the success of exceptionally big-ticket luxury items in Houston.
"We're all lucky to be living and working in Houston and Texas," said Don Pierce, chief operating officer of Ferrari Maserati of Houston near the Galleria.
"For a lot of people, a Ferrari is an aspirational goal, and the Houston market is such that a lot of people are achieving their dreams," he said.
In years past, Pierce said, the dealership was more likely to appeal to the same customer base. "Now, our client mix is a lot more diverse, in nationality and profession."
A new custom-built Ferrari costs between $210,000 and $360,000, he said. Pre-owned cars go for $85,000 to $250,000.
But Pierce did note that Ferrari Maserati of Houston sells more Maseratis, which list for $75,000 to $165,000.