Cheap luxury goods lure shoppers to London but the bargains aren’t expected to last

Bargains attracting foreign luxury shoppers in London won't last

The lure of London for luxury shoppers has tightened its pull in recent months, driven by a combination of its core characteristics and short-term boosts related to the U.K.'s vote to leave the European Union.

Prime retail rents in London soared by an eye-watering 53.8 percent annual rate to the end of June, according to a report released this week by real estate services group CBRE, the highest of any of the 90 global markets tracked.

This leaves London in third place in the most expensive prime retail markets with rents costing an average $1,684 per square foot per year, behind Hong Kong at $1,856 and New York at a stratospheric $4,000.

Nonetheless, as Chinese shoppers have reined in their trips to Hong Kong and locals have tempered their spending, London has been catching up to its second-placed rival which saw a one-third tumble in prime rental values in the past year.

And this gap may keep shrinking, according to Hugh Radford, chairman of central London retail at CBRE, who believes the appeal of London's finest retail sites is unlikely to diminish any time soon.

Chris Mellor | Lonely Planet Images | Getty Images

"Identifying exactly the right location is of crucial importance to retailers. For high-end retailers in particular, this comes down to a small number of highly desirable streets within London – including Bond Street, Sloane Street, Regent St and Covent Garden."

"Supply – and turnover of occupiers – is therefore limited by the simple fact that they are loathe to leave spots once in situ in coveted locations. There is inevitably high demand when such properties do make it to market, driving rental growth," he concluded.

In addition to London's intrinsic appeal, the plummeting pound in recent months has meant luxury shoppers on a foreign dime have been able to snap up some compelling bargains as retailers tend not to inflict currency changes on their consumers immediately after they occur.

According to Nick Pope, U.K. head of fashion and luxury for consulting firm Deloitte,"Luxury brands tend to resist broad brush pricing adjustments to avoid generating resentment in consumers who have already purchased the same item at a higher price. This is in contrast to more commoditized consumer goods where the impact of currency and commodity movements are often passed through swiftly to the end purchaser."

A report from Pope's team at Deloitte released earlier this month showed how just much of an effect sterling's fall – down around 18 percent against the U.S. dollar since the Brexit result – has had on luxury items.

The report found that over 64 percent of luxury goods are currently cheapest in the U.K.when comparing identical goods in France, the U.S. and China.

Bringing that example to life, Deloitte says this season's covetable "foulard fringe" dress from Italian fashion house Balenciaga would set a purchaser back only $1,369 in the U.K., versus $1,565 in France and $1,669 in China. The identical item would cost a staggering $1,765 in the U.S.

However, Pope says this situation is unlikely to last forever.

"If sterling weakness persists over the next 6 – 12 months and margins continue to come under pressure, I would expect more brands to incorporate price changes," he added.

A shopper browses handbags inside a Furla SpA store in Hong Kong, China. Furla, the closely held Italian handbag maker, predicts its China sales will outpace the company's this year as a rising middle class and government austerity drive benefit entry-level luxury goods.
Brent Lewin | Bloomberg | Getty Images

The potentially short-term window for bargain hunters is not going unnoticed by tourists, with Visit Britain, the U.K.'s official tourism website noting a 2 percent jump in tourist visits this August versus a year ago and a 4 percent rise in tourist spend.

Eve Baker, managing director at Beiwei 55º Travel which organizes mandarin-language guided tourism trips to the U.K., says her experience is reflective of these trends.

According to Baker, "Our Chinese customers often like us to incorporate an element of shopping into their itineraries, but post the Brexit vote we have certainly noticed even more of an emphasis on this."

And the opportunity to buy a piece of Britannia can be additionally attractive.

"Customers seem to like the local British-made brands most of all, as these are not always available in China and are therefore a symbol of status. A recent customer of ours spent two hundred pounds in just 10 minutes at a Jo Malone perfume and candle store in London."

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