The Long View by Vogue Business: Unpacking luxury’s hospitality ambitions

This article is part of our Advanced Membership package. To enjoy unlimited access to The Long View from Vogue Business and bi-monthly Market Insights Reports and webinars, sign up for Advanced Membership here. Louis Vuitton plans to include hotel rooms in its new space at 103 Avenue des Champs-Élysées, according to sources. It’s the latest example of an ongoing convergence between the luxury and hospitality sectors, which has seen a growing number of brands partner with, open or acquire hotels, clubs, restaurants and bars. But some fashion execs are wary of getting into hospitality — a game with a very different set of rules. “The future of this place will be where we unite different expressions of the brand; commercial, of course, but also cultural, exhibitions, hospitality,” Louis Vuitton women’s artistic director Nicolas Ghesquière told Nicole Phelps, global director of Vogue Runway and Vogue Business, ahead of its Spring/Summer 2024 show. The brand is keeping the detail of what exactly it has planned for the former HSBC building — which was once a hotel for guests visiting the 1900 Exposition Universelle — under wraps. Louis Vuitton already has restaurants, beach clubs and an airport lounge in Doha, Qatar. Last November, it unveiled LV Dream, an exhibition space and cafe under the house’s HQ in Paris. The Champs-Élysées site will be its most ambitious hospitality project to date. Louis Vuitton CEO Pietro Beccari has form. When he was CEO of Dior, he pushed through the reopening of its historical flagship on Avenue Montaigne with a restaurant (named Monsieur Dior and led by celebrity chef Jean Imbert), café, hotel suite and a gallery. “Beccari is a firm believer in the experiential component of retail,” says HSBC analyst Aurelie Husson-Dumoutier. “Louis Vuitton’s DNA is travel so a hotel would make sense [for 103 Champs-Élysées], as well as a museum, similar to the one in Asnières [the historic home of Louis Vuitton includes an exhibition space]. Bernard Arnault [chairman and CEO of Louis Vuitton parent company LVMH] said that Louis Vuitton sells culture. All the actions that LVMH takes is to enhance the desirability of a brand.” Louis Vuitton is not the only luxury brand ramping up its investment in hospitality. Chopard has just opened a 15-room hotel above its boutique at 1 Place Vendôme, which is named after its address. Bulgari — which already has nine hotels operated under licence in a joint venture with Marriott International — plans to open in locations including the Maldives, Los Angeles and Miami by 2026. Swiss watchmaker Audemars Piguet recently opened a hotel in Switzerland. Armani — which opened hotels in partnership with Emirati real estate development company Emaar Properties in Dubai and Milan in 2010 and 2011 respectively — plans to open a 70-room hotel in Diriyah, 15 minutes north-west of Riyadh, expected to open in 2026. Away from hotels, Dior, Louis Vuitton, Armani, Dolce & Gabbana, Gucci, Jacquemus and Loro Piana took over beach clubs in Saint Tropez this summer (Louis Vuitton’s beach club was at the Cheval Blanc hotel, Loro Piana at La Réserve). The pop-up shops there sold a flurry of products ranging from sun hats to branded paddles. Several luxury brands have gone into the restaurant business: Tiffany & Co reopened its Fifth Avenue flagship in April with a Blue Box Café by Michelin-starred chef Daniel Boulud. Fashion week goers were sad when one of their canteens in Paris Le Castiglione closed; they can take comfort in the fact that the future Gucci flagship that will open at Le Casti’s location will have a restaurant, Gucci Osteria. Meanwhile, multi-brand luxury retailers are opening members’ clubs. Doug Stephens, founder of consultancy firm Retail Prophet, attributes the phenomenon to the convergence of three factors: social media, macroeconomy and demography. “The West has had its products run. The luxury boom in recent years has been partly due to the emergence of the Chinese middle class. In China, products are still important — a trophy product would signal success — but the Chinese economy is sputtering right now and the move towards experiences as a means of reengaging Western consumers is accelerating. Social media has also worked against the idea of products as status. Social media has fuelled the move towards experiences and the young generation tends to favour experiences over products.” The global luxury market is expected to reach €1 trillion by the end of 2023, according to management consultancy BCG’s ‘True Luxury Consumer’ report. Some (57 per cent) of this will be experiential luxury (including food and wine, fine dining, hotels and exclusive vacations). The experiential segment of the luxury market is expected to continue to outpace personal goods and grow at a compound annual growth rate of 8-10 per cent through to 2026. “I expect experiential luxury especially at the very high end to be more resilient than personal good luxury growth and expect to see continued investment from brands in this space,” says BCG managing director and partner Sarah Willersdorf, who led the report. Luxury hospitality has proved resilient. “Revenge travel has led to a rebound of global luxury hospitality since 2022, and particularly in Paris,” says Vanguélis Panayotis, CEO of Paris-based MKG Consulting, a consultancy specialising in hospitality. “Occupancy is slightly below 2019 levels but average prices are much higher.” Hospitality allows brands to immerse consumers in their worlds, said Stéphane Rinderknech, president and CEO of the LVMH beauty division as well as hospitality excellence — which includes the Cheval Blanc and Belmond luxury hotel groups (five and 45 hotels respectively) — at a recent Vogue Business member event. “Luxury brands are going into experiential more and more and hospitality is becoming one of the strategic components of brands. Monsieur Dior is full all the time, LV Dream is always full. It’s an immersive venue into a brand,” he said. “How do you make the consumers even more embedded within the universe of the brand? By bringing experience.” A different ballgame Not all luxury executives are convinced. During the Richemont full-year earnings call in May the Swiss luxury conglomerate’s chairman, Johann Rupert, said: “I am a sceptic about taking a maison’s name and getting it into food and beverage. You cannot control the quality. I owned a hotel. It’s the most stupid thing I did in my life. Hotels are businesses that should be left to hoteliers.” Italian fashion house Missoni had inked a licensing agreement with Rezidor Hotel Group (the owner of Radisson Blu) for the development of hotels in 2005. The licence ended and Rezidor ceased operating the two hotels under the Missoni brand in 2014. Today, Missoni is dabbling in hospitality again, partnering with luxury real estate developer Dar Global to create interiors for luxury residences. The brand also teamed up with the One&Only Reethi Rah hotel in the Maldives earlier this year, to decorate its beach club with its signature prints as part of its Missoni Resort Club project. There’s no denying that venturing into hospitality comes with challenges. “Mistakes can be anything from picking the wrong partners, to operational errors,” says Retail Prophet’s Stephens. “Hotels are a completely different business model,” points out HSBC’s Husson-Dumoutier; one with lower margins. Bruno Roland Bernard, finance professor at Institut Français de la Mode, says hospitality’s gross and operating margins are 55 per cent and 5 per cent respectively, while for luxury goods it’s closer to 75 per cent and 20 per cent. Luxury hospitality is also a different temporality, says MKG’s Panayotis. “It’s very long term. You must maintain the level of service, even when you have headwinds, when the activity is low; similar to airlines. Handbags you can still sell later if you didn’t have traffic one day.” For guests eager for new experiences, brands need to avoid fatigue by creating new reasons to come to the hotel. “In fashion you get novelty every six months, in hospitality you revamp a hotel every seven to eight years,” Panayotis points out. Bernstein analyst Luca Solca says: “I think that some brands have already gone quite deep into this — think Bulgari or Armani, for example. Most other brands are reserving in-store venues to receive VICs (very important customers), like the Dior penthouse. In both cases, not many brands can get to this level, as it would require significant capex – off limits for the majority of smaller brands. I think the point here is to have a brand strong enough so that you find a hotel chain willing to develop and run the concept for you.” One of the biggest risks is an inconsistent experience. As LVMH’s Rinderknech put it: “It’s a passion for excellence. It’s a passion for detail. One of the things in this industry that really strikes me is that if someone says, ‘I didn't get my croissant’, even if the person got their croissant, [the staff] never say, ‘but I gave them the croissant’. They say, if the person complained, that means we did something wrong. Where is the problem? So this passion for excellence, this passion for the best service, I think it’s an example for all other industries.” “In fact, luxury brands are increasingly hiring talents from the hospitality industry to lead their retail business,” says Jean-Luc Naret, luxury hospitality consultant. Making a statement, testing products While hotels require a lot of investment and have significant fixed costs, they are a tempting way to fill space, according to Vincent Ascher, partner at global retail estate services firm Cushman & Wakefield. “Twenty-thousand-metre-square might be too big for a store only, and a hotel is an alternative to offices. A mixed use [retail and hotel] is the best way to bring a building to life throughout the day and to manage traffic flows,” he says. Retail Prophet’s Stephens notes that strategies depend on individual brands. “For some it’s a branding statement, for others it is a pragmatic experiment to test how the brand translates beyond your core product category. It allows the brand to show its products in a context.” Ortelli agrees: “If you are a luxury brand and want to launch a home or beauty line, a hotel is a good showcase, it gives you legitimacy in these new product categories.” In the Bulgari hotels, bathroom amenities are produced by Bulgari with a bespoke fragrance and in all the properties there are vitrines displaying both Bulgari jewellery and accessories. The Armani hotels and luxury residences display Armani/Casa furniture. From the cognac to the sprawling Dior-branded spa, Cheval Blanc’s hotel in Paris is filled with LVMH-owned brands. Belmond Hotels, which LVMH acquired for $3.2 billion in 2019, also has plenty of LVMH-owned brands. Think of a Dior spa in Belmond’s iconic train Royal Scotman, “as a nod to Christian Dior’s passion for Scotland”. For some, it’s not about return on investment in the direct sense. “The financial contribution [of the hospitality business] is immaterial, but the image contribution is very significant,” Silvio Ursini, executive vice president of the Bulgari Group in charge of Bulgari Hotels, told Vogue Business at the time of the opening of a Bulgari hotel in Paris in November 2021. It has been beneficial for Bulgari. “The house has created a unique offer at the pinnacle of hospitality that is consistent with the brand positioning. It creates another touch point, which is particularly appealing for a brand like Bulgari because consumers don’t buy jewellery every day,” says Mario Ortelli, managing director of luxury strategy advisory Ortelli and Co. The opportunity for storytelling holds appeal for many luxury brands. In the new Chopard-owned hotel, some rooms are named after precious stones such as ruby, diamonds and sapphire. This prompts visitors to create content about the brand. “As the cost of media is going up and the efficiency is going down, hotels are a new way to connect directly to the consumers. Consumers become the media themselves as they post about their experiences in your hotel on social media,” Stephens says. It’s “free PR for the brands”, as Morgan Stanley analyst Édouard Aubin says in a 2023 report titled ‘The Miami heat’. “Social media posts are consistently being generated.” According to Morgan Stanley, the (very Instagrammable) Dior café that opened in Miami’s Design District in 2019 has on average a three-hour wait during weekends. Stephens sums up: “Hospitality constitutes a breakout opportunity for luxury brands but it’s not about slapping your name on a hotel, it has to be in harmony with the brand and it has to be excellent. Sure there will be mistakes and learnings — the nuances of operating a hospitality business – and it may not be perfect at launch, but brands have to take risks today and attempt to occupy more and more of the consumer’s life. Once every luxury brand has a hotel, they’ll have to do something else but the sky’s the limit. There is no reason to think LVMH couldn’t start a luxury airline competing with Emirates.” Key takeaway: Hospitality initiatives from luxury brands are multiplying. Coming next, sources say, is a Louis Vuitton hotel. Hotels require a lot of investment and margins are lower than for luxury goods. However, they can enhance brand equity and allow for storytelling, as well as being a showcase for different product categories. 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