The Life of Luxury ... Hawaii Style

High-end retailers are bullish on Honolulu despite a decline in Japanese visitors and a drop in real personal income for residents

MARIKO Lyons, the kind of fashionista who frequents Rodeo Drive, was up for some serious shopping during DKNY's in-store soiree last week as part of Ala Moana's World Festival, but crowds made it difficult to carve a path to the register.

"I want to shop, but it's hard because this is such a party event," said Lyons, who no doubt will choose an additional day to get a better look at all the DKNY pretties that caught her eye.

Lyons was one of about 300 guests, along with celebrity Yunjin Kim of the hit television series "Lost" and VIPs from InStyle magazine, who turned out on Wednesday to peruse DKNY's newest lines and support Diamond Head Theatre, the evening's beneficiary.

"I go to Rodeo Drive, but you find the same things here," Lyons said as high-energy dance music beat a tempo in the background. "Actually, it's nicer here because we have everything, but it's not so spread out."

Despite a drop in the big-spending Japanese visitor market and a decline in real personal income for Hawaii residents, luxury brands are as bullish on Honolulu as Lyons. The DKNY event and other Ala Moana World Festival offerings are a microcosm of Honolulu's high-end retailing scene, where rapid expansion and vigorous reinvestment rules.

Honolulu continues to catch the eye of new high-end retailers and inspire those that are already here to bank on better times by reinvesting in their product. Some have doubled store sizes, while others have scouted out more premier locations or expanded merchandise lines.

Still, shifts in the visitor component of the retail spending and changes in the underlying economic fundamentals of residents have made it more challenging for luxury retailers to rake in short-term benefits, said Paul Brewbaker, Bank of Hawaii's chief economist.

Reduced Japan tourist counts, a drop in the rate of home-equity appreciation and increases in fuel costs are hemming in the high-end economy, even as retail rivalry is spurring continued investment, Brewbaker said.

"This is not like soybean farming or corn farming in Iowa where your product is the same as every schlep who has a field," Brewbaker said. "If you are Louis Vuitton, you can't just sit on the corner of Kalakaua watching everyone else expand their store."

Over the long term, Hawaii's growing high-end residential market and more visible branding as a luxury destination for resort living is likely to make up for declines in the visitor market, said Stephany Sofos, a Honolulu-based retail analyst.

"This market has been enhanced by infrastructure upgrades and luxury builds, which enhance retail and commercial sectors," Sofos said. "Ko Olina, Hokua, Watermark, Trump Tower and the other 18 new projects in Kakaako were designed to cater to high-end consumers who by their very nature are less influenced by changes in the economy."

Infrastructure improvements and real estate investment has made Hawaii's brand more competitive with other luxury destinations, spurring growth of high-end retail -- even in a down cycle, Sofos said.

"We are considered a global location for luxury and fine fashion because we have become a place where everyone goes and everyone wants to be," she said.

In the 1970s when Margo Bourland, a couture shopper, first moved to Hawaii, she said that there was little high-end product available.

"I returned to San Francisco to do most of my shopping," Bourland said. "We were like a little Polynesian island with nothing to buy but bikinis and muu muus, and then in the late 1980s and early 1990s, suddenly we became like a normal city."

Bourland, who was at the DKNY event on Wednesday, said she has seen many improvements in the luxury marketplace during her time in Hawaii, and is now a frequent Ala Moana shopper.

While other markets may ebb and flow, the success of Ala Moana's sixth World Festival indicates that at least in Honolulu, there are plenty of buyers who want luxury goods, said Sharon James, a regional vice president for General Growth Properties, which owns and operates Ala Moana Center and the nearby Ward Centers in Kakaako.

Ala Moana's World Festival, which ends today, is the equivalent of New York's Fashion Week and generally boosts high-end traffic at the center by about 20 percent, James said. The event attracts repeat customers from all islands, as well as Japan, to party, shop and get their hands on the scarves, handbags and other limited-edition goods that are designed specially for the Honolulu event. Customers frequently line up for the chance to buy exclusive store merchandise ranging in price from the hundreds to the thousands of dollars.

Retailer participation in the 2006 World Festival-Hawaii's Fashion Week has been strong, James said. New stores like Jimmy Choo and Theory are involved in World Festival, while luxury brands like Hermes and Dior have come to the table with a lot of offerings and in-store events, James said.

"This is a great indicator that the return on investment is there for the luxury brands since they are more involved than past years," James said. "The publicity generated both nationally and internationally is worth millions in equivalent ad value."

About 13 percent of the 260 stores at Ala Moana are considered luxury retailers, and most of them are involved in World Festival, James said. The event offers luxury retailers a way to connect with new customers by exposing their brand and the quality of their products via in-store events and special guest appearances, she said.

Despite a downturn in the Japan visitor market, Bally is expecting strong returns from this year's festival and the retail season as a whole, said Don Le, store manager of the Bally's Ala Moana location.

"This year is very important for us. We went from 1,700 to 3,300 square feet and moved to the second floor to be with all the other luxury retailers," Le said. "From 2004 to 2005, sales went up about 20 percent. This year, sales will be better."

There are fewer Japan visitors shopping at Ala Moana, and their spending habits have grown more cautious, but the increasing diversity of the marketplace offers new avenues for growth, said Patrick Gey, store manager of Fendi at Ala Moana.

Despite drastic drops in Japan visitor numbers, business at Fendi is still running above flat, he said.

"The local market is very aware of fashion," said Gey.

The World Festival is just one glimpse of momentum in Honolulu's high-end market, which in recent years has spread from Waikiki to Ala Moana Center and Ward Avenue to Aloha Tower, said Anne Murata, vice president of the Hawaii branch of the International Council of Shopping Centers.

At Ala Moana, the signs of reinvestment shine brightly on level two, evoking California's Rodeo Drive and New York's Fifth Avenue.

Ala Moana's Louis Vuitton renovated and re-opened last fall as a two-story luxury store, making it the company's second-largest in the nation, behind only New York City. Chanel boutique, which renovated and re-opened earlier this year, was joined by Prada. Bally and DKNY opened in more strategic locations and Theory and Jimmy Choo entered the marketplace earlier this year. Damiani and Nordstrom are on the horizon.

Undeterred by the struggling Japan visitor market, new retailers like Furla, Tourneau and Kate Spade also have entered Waikiki's Royal Hawaiian Shopping Center, Murata said.

"We all realize that the economy in Hawaii is very cyclical, and that the Japan market is undergoing problems, but that will change," she said. "We have other markets emerging such as China, other Asia, the U.S. mainland and Europe."

As the high-end market has changed, Ala Moana has begun putting more emphasis on targeting the local market as well as mainland visitors, James said.

"Previously, the Japanese visitor was the primary demographic for luxury goods," she said. "While this is still a very important market, we are also trying to reach out to the local and westbound markets."

When it comes to carving out a market niche in Honolulu, luxury retailers -- much like the buyers that they court -- seem to want it all. Judging from the turnout at Ala Moana's World Festival this week, the living might not be easy for high-end stores, but it sure is rich.