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The profit struggle is real for bricks-and-mortar retail, but Royal Hawaiian Center is betting more than $50 million that it can buck that trend by expanding its high-luxury offerings.
New investment will increase the center’s luxury retail presence to 30 percent of its 310,000-square foot site — the largest luxury share ever for the center, which sits on prime leasehold land owned by Kamehameha Schools.
The added luxury space plays into the center’s bid to be Kalakaua Avenue’s reigning luxury powerhouse, said Rosalind J. Schurgin, CEO of The Festival Cos., the management and leasing firm for Royal Hawaiian Shopping Center, which is owned by RHC Property Holding LLC, a division of JPM Asset Management.
It’s a lofty goal considering Kalakaua Avenue is the nation’s fifth most lucrative shopping street in terms of sales per square foot, just after Fifth Avenue and Madison Avenue in New York, Chicago’s Michigan Avenue and California’s Rodeo Drive. But the gain of two more Hawaii flagships, Tiffany &Co and Hermes, which coincides with the arrival of many other coveted retail and restaurant brands, has brought the center one step closer.
Tiffany will enter the center in mid-2018 with an 11,226-square-foot, three-story site. Hermes, which has operated the world’s eighth-best-selling Hermes store in the center since 2002, also is expanding, to a 12,301-square-foot location. The center began construction in July to prepare for Hermes, which has moved to a temporary Kalakaua Avenue-facing location until the new three-story site opens in December. Luxury sunglasses retailer Vitra Eyewear also will open this October.
Also under construction:
>> Dean &DeLuca, an upscale grocer, which will open this holiday season.
>> Island Vintage Gourmet is building out its coffee shop to make room for a sister business, the Island Vintage Organic Wine Bar, which will open in mid-2018.
>> Tim Ho Wan dim sum eatery, known as the “world’s cheapest Michelin star restaurant,” will open in February.
>> Wok to Walk, a 45-second made-to-order stir-fry concept that originated in Europe, is coming to the Paina Lanai food court later this year.
>> Japanese restaurant Suntory, a longtime tenant, is expected to start
renovations in September or October and complete them by November.
The center’s latest plans are a continuation of a
$250 million repositioning that began in 2005 and improved occupancy at the then “functionally obsolete” property from under 30 percent to the high 90 percent range, Schurgin said. Since then the center has added another $100 million in tenant and center improvements, including an ongoing $50 million renovation that includes center construction costs for Hermes and Tiffany and center improvements at Building A, including new escalators, elevator and a fourth-floor glass canopy. And there’s more investment to come with another round of redevelopment planned for 2019, Schurgin said.
“It’s very ambitious in the reality of today’s marketplace where even luxury is struggling because you can buy a 5-carat diamond on eBay or a brand-new Rolex on Amazon,” said Waikiki-based retail analyst Stephany Sofos. “They are going back to their roots, which originally positioned them as the No. 1 luxury retailer for Waikiki.”
Sofos said the center was firmly established in the 1980s as the to-go place for luxury retail in Waikiki. It lost some of its hold with the opening of 2100 Kalakaua Avenue, which shifted luxury retailers to the gateway of Waikiki, she said. The lack of investment in Waikiki before 2005 also contributed to the downgrading of the destination, Sofos said.
“The vision of our relaunch in 2005 was to re-establish ourselves as a global luxury destination. It coincided with the Waikiki Beach Walk Renovation, and our concentration of luxury retailers stretched the Lewers Street and Kalakaua Avenue retail epicenter all the way to Seaside Avenue. It also brought locals back to Waikiki. We’re up to 30 percent kamaaina traffic. That’s our highest level ever,” Schurgin said.
While many retailers are struggling, the Royal Hawaiian Center’s latest expansion is poised to take advantage of the gentrification of the Waikiki tourist destination over the last several years, said Mark Bratton, senior vice president of Colliers International.
Spending by visitors to Hawaii was up nearly 9 percent to a record $8.4 billion through the first half of the year, according to preliminary statistics released
July 27 by the Hawaii Tourism Authority. If results stay on track through year’s end, Hawaii tourism will realize its sixth year in a row of spending gains.
“The timing is right. They are reinvesting in a world-class asset with exclusive brands. It’s a lot of money, but it’s probably not that big of a risk for them,” Bratton said. “Waikiki hotels have invested, and they are bringing in higher-income clientele. Kalakaua Avenue is hot. They’ve got the foot traffic and the allure.”
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