The average median price of luxury goods in Mainland China is 60 to 75 percent higher than in Europe, while in the U.S., the median price is just 10 percent more than the European average. This is one of the things that Bernstein analyst Luca Solca found after looking at the median price for a like-for-like basket on a year-over-year basis (between January 2020 and January 2021), and the price increases across all products available on the websites of nearly 40 big-name luxury brands – from Balenciaga and Bottega Veneta to Gucci and Louis Vuitton – over the past five years to determine how brands are pricing their products across the globe and how that might impact consumer spending amid rebounds from COVID-induced sales slumps. 

In furtherance of a deep dive into the geo-pricing tactics of major luxury goods brands, Solca states that an analysis of the pricing strategies of luxury goods brands – which he notes are impacted by “tariffs, distribution costs and brand positioning across markets,” among other things – reveals that Louis Vuitton, Prada and Moncler have been among the most aggressive “in terms of price increases in the past year, apparently making the most of their strong momentum.” Armani has similarly boosted prices, “as a result of [the company] incorporating adjacent lines like Armani Jeans and Armani Collezioni into the main collection and slowly elevating brand image as a result.” And at the same time, Ferragamo, Tod’s, and Valentino have also hiked price tags – albeit for a different reason, “possibly in an attempt to limit P&L damages, as muted organic growth and momentum metrics indicate.” 

In addition to raising its average prices over the past year, Solca found that a number of companies, including Prada and Bottega Veneta further “took advantage of positive momentum” for their brands, and also boosted their “assortment offerings.”

Bottega Veneta and fellow Kering-owned brand Balenciaga have proven to be noteworthy in terms of pricing, namely, as a result of “an impressive upmarket move across geographies, combined with strong organic growth.” The group’s marquee brand Gucci has, however, “remained moderate in all analyses, confirming weakening momentum, per Solca, while “Burberry’s softness is highlighted by the fact they increased the median price of their online inventory an average of 20 percent across markets in the past five years but have failed to materially grow their top line on the back of that.” (Bernstein previously found that Burberry introduced a new pricing architecture for their bags in 2019 moving them above £1,400.)

China-focused publication SCMP reports that “Chanel increased the price of its small leather goods this spring, and is expected to do so again later this year, while Louis Vuitton introduced price hikes twice in 12 months on its small leather goods and handbags. The brand’s Onthego GM Monogram Canvas went up from US$2,690 to US$2,790, for instance – a 3 percent rise- while another of Louis Vuitton’s bestsellers, the Pochette Accessoires Monogram Canvas, went up a whopping 25 percent from $630 to $790.”

Not all brands are seeing price hikes across the board. Fendi, for instance, has moved towards “logo-heavy apparel,” thereby, “reducing its average price across certain markets like Japan and the USA.” And despite other instances of price increases, Moncler has added “accessories (e.g. caps, gloves) and footwear” to the mix, which has reduced its average price point as a result. 

In terms of pricing strategies, the note points to a number of “distinct” approaches that are currently playing out – from brands setting prices lower on their home turf that in international markets (Marc Jacobs is the “most extreme” example of this, per Solca) to brands serving “different geographic constituencies with different products,” i.e., Louis Vuitton offering up its most expensive styles in precious skins and canvases in Asia. Beyond those examples, Solca asserts that brands with “a strong focus on apparel,” whose geographic price gaps have traditionally been “extreme,” with prices in China and Japan being “more than double the prices in Europe.” Solca claims that Valentino is a good example of this, with its prices increasing 2-fold in China compared to France; although, he says that Valentino has “been struggling to justify increasing prices for their products.” 

And still yet, brands – such as Bottega Veneta, Celine and Tod’s – are moving towards “a global pricing standard, in a similar vein to what Chanel did” beginning in 2015 when it revealed it would harmonize prices for at least a few of its most iconic handbags, that is not the case across the board. “We believe this comes from a more uniform global assortment and a more concentrated consumer constituency,” per Solca, namely, “a prevailing Asian customer base for Bottega Veneta, Fendi, [and] Celine, and an overwhelmingly Italian customer base for Tod’s.” 

In what might be the most telling takeaway from the note, some brands have pushed to raise prices over the past four years in China, with Balenciaga, Burberry, Tods, Loewe, and Louis Vuitton being the brands that have exhibited the greatest median price increases on the mainland, thereby, resulting in the sizable price differential between China and other markets. This is significant Solca says, as the 60 to 75 percent markup on luxury goods in China versus Europe could have implications for Chinese consumers when international travel resumes en masse. Most reports anticipate that luxury-happy Chinese consumers will cut down on their international travel-related consumption even in a post-COVID world, in part as a result of efforts by the Chinese government to ease various import and value-added taxes – which have been a notable driver of overseas spending in the past – and make luxury goods more attractive on the mainland.

For instance, as Bloomberg’s Andrea Felsted and Anjani Trivedi asserted in March, “With the government promoting a so-called ‘dual circulation’ policy, to generate demand and supply at home, consumer confidence is likely to stay strong.” As such, “even when Chinese shoppers can travel to Paris and Milan again, domestic spending will not revert to pre-pandemic levels.” 

While the percentage of luxury goods acquired each year by Chinese consumers outside of the Chinese Mainland may not return to the previously-observed 60 percent figure, Solca expects that the “persistent high price gaps between China and Europe” is likely to get these coveted luxury buyers shopping abroad again, making for “a further growth spurt – on the back of price elasticity – once Chinese consumers are allowed to travel again internationally.” As for when that can be expected, he asserts that it might be a while off – and in 2023 or 2024, making this an “extended play” scenario. 

On the heels of plummeting sales for fashion and makeup products as consumers have been shut in as a result of the pandemic, beauty brands and off-price retail players are expected to be “the biggest winners in 2021,” CNBC reported, citing a recent report from Wells Fargo retail analysts. Surveying 1,000 U.S. consumers, Wells Fargo found that 40 percent of participants revealed that their “first, post-pandemic” purchases will be makeup, followed by 37 percent who said “going-out apparel,” thereby, signifying a shift away from COVID-centric buying behavior, which has centered largely on homewares, as well as athleisure and loungewear, back to pre-pandemic consumption habits. 

Wells Fargo’s findings mirror the sentiments coming from other market entities, such as NPD Group, whose analyst Marshal Cohen, asserted this month that “apparel and footwear sales are starting to show some signs of life.” The market research firm suggests that the roll out of COVID vaccines and the increased desire among consumers to “plan vacations and socialize again” is leading to a “sudden” rise in sales in previously dormant categories. “More than half of U.S. consumers plan to buy apparel in the coming months, making it the top category of anticipated spending, followed by footwear and beauty products,” the Washington Post wrote, citing NPD findings.

And still yet, brands, themselves, are starting to see an uptick. Richard Hayne, the CEO of Urban Outfitters’ parent company URBN, stated in a Q4 earnings call early this month that the group is “seeing signs of customer interest in going-out type apparel beginning to emerge,” which he attributes to “vaccines becom[ing] more widely distributed, new COVID cases continuing to fall, and government restrictions begin[ing] to loosen.” Speaking specifically about the URBN-owned Anthropologie brand, Hayne stated on the call that he noticed a shift in late February when the “list of top 10 selling items on the anthropologie.com website included seven dresses,” which he said was “striking” given with over “the past year, we were lucky if they included one or two dresses.” 

In terms of the growing rebound in the apparel and beauty spaces, Wells Fargo analyst Ike Boruchow says that he expects beauty retailers like Ulta to be among “the biggest beneficiaries” of the return to a new sense of normalcy. In that same vein, rival retailer Sephora is similarly slated to benefit from a boost in demand for cosmetics, with parent company LVMH Moët Hennessy Louis Vuitton revealing early this year that the beauty chain was in the midst of ramping up by “strengthen[ing] its offering with new skincare and hair products.” (A recently-filed trademark application for “Fenty Hair,” anyone?)

Both beauty retailers have been busy angling for a return to stores across the U.S. by partnering with big box retailers – Target for Ulta and Kohls for Sephora – for mini shop-in-shop set-ups. In addition to seeking to build upon the pandemic-driven momentum that has been enjoyed by the likes of Target and co., the beauty-and-the-big box partnerships appear to be playing to the call for brands and retailers to “facilitate better retail experiences” in the post-pandemic market, according to Gentler consultant Michael Gatti, whether that be through “engaging and creative in-store experiences” or the introduction of an expanded range of products, such as a revolving roster of buzzy new beauty brands, something that Target has been increasingly working on in recent years. 

Elsewhere in the beauty market, rebound momentum is underway. In its annual report in January, LVMH revealed that despite the “sector suffering from the decline in international traveller spend,” its Perfumes and Cosmetics brands, such as Dior, Guerlain, and its Fenty venture with Rihanna, “show[ed] good resilience,” due at least in part to “the growth of skincare and online sales, particularly in Asia.” More recently, L’Oréal saw its shares hit a new record high in March, as the cosmetics titan revealed that it saw continued recovery in its latest quarter, while Estée Lauder Co. posted “outstanding” second-quarter fiscal 2021 results, with CEO Fabrizio Freda touting the group’s “return to growth in [the] second quarter, earlier than we anticipated.”

Beyond Beauty

Looking beyond beauty, Boruchow says that off-price names are situated to fare well in furtherance of the larger return to retail, as they have been known to do in times of market uncertainty. Economic downturns “work in favor” of discount retailers, Fortune asserted in the wake of the Great Recession, noting that the  2007-2009 recession “turned millions of Americans on to shopping at T.J. Maxx, Ross, Burlington, and Marshalls, and they never looked back.” Reflecting on the success of TJX and Ross during the striking market slump almost 15 years ago, the Wall Street Journal reports that “the S&P 500 lost more than 14 percent of its value from December 2007 to December 2010,” and yet, “TJX and Ross Stores gained 55 percent and 147 percent, respectively.”

Like others, these largely brick-and-mortar dependent chains suffered significantly during the pandemic, with full year revenue for TJ Maxx’s parent company TJX, for instance, declining by about 23 percent to approximately $32.1 billion. Widespread store closures were particularly hard-hitting for these companies, of course, given that they pride themselves (and their largely off-line success) on the in-store treasure-hunt shopping experience that they provide for consumers. Falling sales are expected to change soon – particularly if the past is any indication – as “the economy reopens, pandemic-fueled digital sales growth slows down,” per S&P Global, and price sensitive consumers get back into stores. 

To meet such anticipated demand, and presumably take advantage of the opportunity that has come from an enduring influx of unsold inventory as retailers have struggled to move merchandise during the pandemic, leading to “thousands” of new vendors for TJX, the Framingham, Massachusetts-headquartered chain says that it plans to continue to invest in its physical retail network, with plans to open 122 new stores this year. That will bring its outposts to a total of almost 4,700. At the same time, TJX is likely to benefit from increasingly attractive real estate terms, as landlords scramble to fill vaccines across the U.S.

As for the state of brick-and-mortar sales more generally, despite enduring expectations that consumers will not revert to relying on physical stores in the same way as they did in a pre-pandemic scenario and instead, continue to shop online en masse, that may not be the full story. “E-commerce has been moderating for a couple quarters now,” S&P Global states, citing Garrett Nelson, senior equity research analyst at CFRA. “We think that [will] continue more drastically as the vaccine is distributed and the pandemic gradually fades,” ultimately, prompting the share between physical store sales and e-commerce “to be more balanced.” 

Move over Instagram, WhatsApp, TikTok, etc. You might soon have a brand new app on your phone: a digital vaccination passport that allows people who have been vaccinated against COVID-19 to travel, enter business establishments and attend events. Not having the app could deny people access. The theory goes that vaccination passport apps can help society reopen despite still-high infection risks, including from more infectious and deadly strains of the coronavirus, because they allow protected people to resume normal activities while keeping people vulnerable to infection out of high-risk environments. 

Vaccination passports, however, can have unintended, negative consequences. And beyond ethical issues, building vaccination passport apps is far from straightforward. As a cybersecurity researcher, I see several challenges, including how best to ensure security and privacy, and to get people to trust the verification systems. 

Fuzzy on the details

Like nationality, vaccine status is not visible to others. Passports and government IDs have long been used to prove identity, citizenship and birth dates, and the World Health Organization’s carte jaune, or yellow card, has served this role to prove vaccinations for international travel. These rely on governments as trusted third parties. A lot is still up in the air when it comes to vaccination passport apps. This month, the EU announced its vaccination passport plans. Judging from initial documentation, the system is meant to be decentralized, relying on health authorities to issue certificates that store only necessary information. Notably, it allows for paper and app-based certificates.

In either case, verification would be based on digital signatures, and all health data would remain with the issuing authority or member state. However, while the concept document is promising, what gets rolled out and whether anyone breaks the rules by storing or tracking data remain to be seen. 

The CommonPass app being built by an international nonprofit organization appears to be the most developed vaccination passport app. It currently documents test results. However, while its makers claim that records will be stored only locally on users’ devices, the app is closed source, and the only documentation is a superficial FAQ. Israel has rolled out its “green pass” app, which verifies that a person has been vaccinated or has recovered from COVID-19, but the system has raised privacy and security concerns. Several other countries have also launched vaccination passport apps for internal use, including China and Saudi Arabia.

How an ideal app works

App designers are faced with a difficult task: They need to create a system that is secure, privacy preserving, easy to use, compatible with as many devices as possible, highly scalable and able to operate across borders. The system will have to track institutions providing the vaccination records and the chains of trust – the digital handshakes that prove each part of the system is what it claims to be – linking those records to the app.

It is preferable for users and the organizations that have to verify records to deal with fewer apps, which means that each app would have many users. Security vulnerabilities in these key applications would thus have widespread impact. The large number of users also increases the incentive for attackers who would benefit from abusing a trusted, health-related, government-backed app. Therefore, it is important for vaccine passport apps to maximize privacy by collecting and retaining only needed data, similar to what the EU is proposing. This would include identity, type of vaccine and date of vaccination. Not only does this reduce internal misuse of data, but it also reduces risk in case of breaches. 

A matter of trust

Who could be trusted to build and maintain this app? Some people worry about government and private-sector surveillance. Indeed, there is reason for concern: Vaccine passport apps might become required or quasi required, link identity to personal health information, and, depending on implementation, could be used to establish detailed personal profiles, including movement patterns. Private companies exist to make money and would thus have incentive to monetize passport apps, usually through data mining or sale. Government-backed apps might raise concerns about surveillance and citizens’ rights.

Therefore, to build trust, it’s important to clarify concepts and designs beforehand, documenting what data will be collected and processed, and how. As practiced by the German contact-tracing app, any passport application’s back end and front end need to be fully open source and penetration-tested by security experts to build public trust. There are many challenges, but the technology to build a trusted, secure and privacy-respecting vaccination passport app is available. Technology, however, is just part of the picture. It’s also important to consider a vaccine passport system in the context of COVID-19 and society as a whole.

Thorny issues

Governments will need to consider in more depth the consequences of requiring a vaccination passport app to access restaurants or gyms in places where vaccine doses are not easily and cheaply available to everyone, which is most of the world. Passport apps create inequality between vaccinated and unvaccinated individuals. Those selected by governments to be vaccinated first would enjoy considerable privileges. In the U.S., these have tended to be disproportionately older, wealthier and white. Younger people and communities of color – both groups have been hit particularly hard by the effects of the pandemic – are more likely to be left out. Thus, these apps might increase social tensions.

The perceived safety gains may also have various unintended consequences. For example, premature opening could increase transmission from vaccinated but infected individuals or through increased patronage requiring more unvaccinated staff on site. Last but not least, requiring passporting apps may encourage the unvaccinated to misrepresent their status, whether to make ends meet, to hold on to a job, or simply to avoid being left out, further increasing infection risks. Therefore, in places like the U.S., where all willing individuals will soon be vaccinated, it would make sense to wait to roll out vaccine passports until everyone has had the chance to be vaccinated. Second, there need to be clear, open and public discussions about what these apps are supposed to provide and how they should work. 

A more analog approach that does not need a smartphone or app to work would be more accessible, cheaper and more privacy preserving. The EU’s approach, as it currently stands, allows the use of paper records, verifiable by QR code. A similar system is also being developed by an MIT nonprofit. These semi-digital approaches could be hacked, but so can apps.

Laurin Weissinger is a Lecturer in Cybersecurity at Tufts University. (This article was initially published by The Conversation)

COVID-19 may have put a striking dent in consumer spending on discretionary goods and services, such as travel and luxury goods, but the onset and enduring impact of the global health pandemic did not bring a stop to global trademark and patent filing trends. In an annual report released on Wednesday, the World Intellectual Property Office (“WIPO”) revealed that international patent applications filed by way of its Patent Cooperation Treaty in 2020 “continued to grow,” with filings increasing by 4 percent in 2020 (a total of 275,900 applications), which WIPO says is “the highest number of filings ever,” despite an estimated drop in global GDP of 3.5 percent during the same period.

According to WIPO, China – which was responsible for 68,720 of the total patent applications, a rise of 16.1 percent on a year-on-year basis – remained the largest user of the Patent Cooperation System, followed by the U.S. (59,230 applications, up 3 percent), with both nations “marking annual growth in filings” in 2020. Japan followed with 50,520 applications (down 4.1 percent on a year-over-year basis), while Korea (20,060 applications, up 5.2 percent) and Germany (18,643 applications, down 3.7 percent) rounded out the top five filing countries.

Patents up, Trademarks down

On the trademark front, WIPO – the United Nations agency dedicated to “developing a balanced international IP legal framework” – asserted that “use of the international trademark system dipped, but only slightly” during 2020, which it says “was expected given that trademarks tend to represent the introduction of new goods and services – both of which slowed as a result of the global pandemic.” Specifically, the WIPO report revealed that international trademark applications filed via WIPO’s Madrid System for the International Registration of Marks decreased by 0.6 percent to 63,800 in 2020, marking “the first decline since the global financial crisis of 2008-2009.”

American entities lead the pack in terms of the most trademark filings, with 10,005 applications, followed by applicants in Germany (7,334 applications), China (7,075), France (3,716) and the United Kingdom (3,679). WIPO notes that China stands out in terms of its filings, which grew by 16.4 percent compared to 2019, as it was the only country to record double-digit growth in 2020. The UK, which filed 5.1 percent more applications in 2020 on a year-over-year basis, and Italy – up 3.6 percent – “also reported notable growth.”

Meanwhile, France, which is home to the biggest names in fashion and luxury, saw its filings drop by 16.3 percent. 

In terms of the top individual filers of WIPO trademark applications, Swiss healthcare company Novartis topped the list with 233 filings followed by oft-controversial Chinese tech titan Huawei Technologies in the number 2 spot, and Japanese cosmetics giant Shiseido taking third place (from the number 11 spot on last year’s last). L’Oreal notably dropped down to the number 5 for 2020 after taking the top spot the year prior, meanwhile, Abercrombie & Fitch’s European arm took the number 19 spot (from 30 in 2019) with 48 filings. Ahead of its impending IPO, Korea e-commerce giant Coupang Corp. landed in the 27 spot (from 113 since last year), and LVMH-owned Guerlain at 36 (63 in 2019). 

WWD reports that further down on the list are Louis Vuitton, which had 23 filings in 2020; Giorgio Armani S.P.A. with 21 filings; Richemont International S.A. with 17 filings; Moncler S.P.A. with 16 filings; Uniqlo owner Fast Retailing with 14 filings; and Rare Beauty, the newly-launched beauty venture of Selena Gomez with 12 filings. WIPO data also shows that “several brands filed substantially fewer applications” in 2020 than the year prior, including LVMH Fragrance Brands, with 13, down from 25 a year earlier; Hermès International, with 16 (down from 22), and Chanel Sarl with 15 filings (down from 21).

Interestingly, although unsurprisingly, WIPO revealed that among the top 10 classes of goods and services most heavily cited in the trademark applications filed in 2020, Class 10, which covers “medical apparatus,” and Class 5 for “pharmaceuticals and other preparations for medical purposes” saw the fastest growth, growing by 21.1 percent and 9.2 percent respectively. (As we noted in December, fashion and luxury brands have been rushing to file trademark applications for their names and logos for use in Class 10, i.e., for use on “protective” and “respiratory masks,” as designer face masks have become a category of accessories all of their own.)

Industrial design filings & domain disputes

As for industrial designs, WIPO says that “the economic fallout from the pandemic hit demand for the protection of industrial designs via the Hague System for the International Registration of Industrial Designs,” with demand falling by 15 percent in 2020 to 18,580 designs – the first decline since 2006. 

Some of the noteworthy names on the list of applicants seeking protections for the visual design of their products: Hermès’s corporate entity Hermes Sellier, which took the number 23 spot (up from 113 in 2019), having filed 139 design applications in 2020; the Swiss arm of jeweler/watchmaker Harry Winston took the number 25 for 2020 (up from 28); Cartier right below it at 26 (up from 40 in 2019); Cartier’s parent company Richemont came in at number 33 (down from 26 last year); and watchmaker Patek Philippe took the number 38 spot (down from 33 in 2019). 

Finally, reflecting on disputes initiated in connection with the Uniform Domain Name Dispute Resolution Policy, WIPO found that of the “record” 4,204 cases initiated by trademark holders, 6 percent of complainants were fashion brand and 1 percent were luxury brands. WIPO noted that “with a greater number of people spending more time online during the COVID-19 pandemic, trademark owners are taking up this service not only to reinforce their online presence, but also to offer authentic content and trusted sales outlets to Internet users across varied business areas.”

A New York state court ruled against Valentino last month in its quest to escape from the lease for its sweeping store on Fifth Avenue in New York, arguing that COVID-19 has made retail untenable, thereby, excusing its performance in connection with the pricey lease agreement. On the heels of Valentino filing suit against its landlord 693 Fifth Owner LLC in June on that basis that its business in the four-story midtown Manhattan boutique “has been substantially hindered and rendered impractical, unfeasible and no longer workable,” a New York Supreme Court dismissed the complaint, prompting the fashion brand to appeal. 

Because the parties had “expressly allocated the risk that Valentino would not be able to operate its business” in their May 2013 lease agreement, making it so that Valentino is “not forgiven from its performance, including its obligation to pay rent by virtue of a state law,” Justice Andrew Borrok granted 693 Fifth Owner LLC’s motion to dismiss Valentino’s case, including its impossibility of performance, rescission based on failure of consideration, and constrictive eviction claims, as well as the fashion house’s declaratory judgment claims for frustration of purpose. 

“The fact that the COVID-19 pandemic was not specifically enumerated by the parties [in the lease agreement] does not change the result,” Justice Borrok wrote in his decision, “because the lease is drafted broadly and encompasses the present situation by providing that nothing contained in […] the lease, including ‘restrictive governmental laws or regulations,’ certain cataclysmic events, ‘or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed in performing work or doing acts required’ shall excuse the payment of rent.” 

Speaking to Valentino’s individual claims, the judge held that the Valentino Garavani-founded brand’s “failure to plead that it moved out of the subject premises or that the landlord substantially interfered with its use and possession dooms its claim for constructive eviction.” He stated that “the Valentino store continued to operate as of July 22, 2020,” and in fact, amid the pandemic, “A sign was placed on the store indicating that it was open for curbside retail and by appointment.” 

“Valentino’s conclusory and general allegation that the landlord failed to maintain the premises, even taken as true as the court must at this stage of the proceeding, lacks causation,” the decision states. “Finally, to the extent that Valentino indicated that after filing this action, it subsequently made the decision to move out and vacate the premises also does not change the result,” Borrok stated, ultimately determining that “no wrongful act of the landlord is alleged to have caused the necessity of this decision.” 

In filing suit against 693 Fifth Owner LLC in June, Valentino argued that “the current social and economic climate, filled with COVID-19-related restrictions, social distancing measures, a lack of consumer confidence and a prevailing fear of patronizing, in-person, ‘non-essential’ luxury retail boutiques,” prevented it from operating its store as usual, something that it said that it did not see changing in the near future. As such, the Mayhoola for Investments-owned brand pointed to a provision in its lease – which was slated to run from August 2013 until July 2029 – that mandates that it use the retail space in a manner that is “consistent with the luxury, prestigious, high-quality reputation of the immediate Fifth Avenue neighborhood.”

On the heels of the court’s dismissal, Valentino filed a notice of appeal on February 17, asserting that the court misapplied the legal standard for a motion to dismiss. Specifically, Valentino claims that it “adequately pled each of its causes of action for (i) frustration of purpose, (ii) impossibility of performance, (iii) rescission based upon failure of consideration, (iv) constructive eviction and (v) other declaratory and/or injunctive relief that should not have been dismissed at that juncture.” Yet, it argues that “the court mistakenly held that these claims were vitiated by the subject lease, but (a) the risks of the COVID-19 pandemic were not allocated to [Valentino] in any provision of the subject lease, and (b) the lease does not waive or bar any of [its] equitable and/or quasi-contractual causes of action.” 

Fast forward two days, and 693 Fifth Owner initiated a separate but related action of its own, accusing Valentino of breaching the terms of the lease by abandoning the space in December and failing to pay rent even before that (beginning in September 2020), while also allegedly failing to repair damage to the property. 

Despite Valentino’s claims that it was damaged significantly as a result of the pandemic and resulting lockdowns and marked drops in luxury goods sales, 693 Fifth Owner argues that the brand is blaming the pandemic in order to get out of the lease, when in reality, the brand “had been suffering since well before the COVID-19 pandemic,” and has opted for a smaller – and less expensive – lease at 135 Spring Street. 

With the foregoing in mind and given the property damage that was allegedly caused by the brand, including “sizable holes” in and paint on the Venetian Terrazzo marble panels within the store space, 693 Fifth Owner is seeking more than $200 million in damages – $15.3 million for the damages and rent lost during the time that repairs were being made, $6.6 million for unpaid rent between September 2020 to February 2021, and $184 million in rent for the rest of the 16-year lease’s duration. 

Real Estate Lawsuits Abound

The rival lawsuits come as a growing number of brands and retailers have clashed with their landlords in light of COVID-centric lockdowns. Holland & Knight LLP lawyers Janis Boyarsky Schiff, Elena Otero, Meg Raker, and Danielle Moore stated that as of this spring, landlords had been “inundated with requests from tenants regarding their financial obligations under their leases,” with at least some of those requests resulting in litigation. 

For example, as recently as late 2020, Stella McCartney was embroiled in a $9 million legal battle over the brand’s Madison Avenue store in Manhattan. In the complaint that it filed in a New York state court in November, Mallett, Inc. claims that it entered into a 10-year-long sublease agreement with Stella McCartney’s American arm in 2016 “covering the basement, ground floor, parlor floor and third floor in the building located at 929 Madison Avenue” in furtherance of which the London-based fashion brand was paying upwards of $1.5 million per year in rent until it allegedly stopped paying in April. 

According to McCartney’s declaratory judgment suit, “The COVID-19 pandemic has presented unique and unprecedented circumstances that were unforeseeable – indeed, unimaginable – at the time the sublease was executed,” with the March 2020 shutdowns bringing New York City to “a complete halt and all business and commercial activity to a standstill,” and thereby, frustrating the “purpose in  paying a premium rent for the premises in order to obtain the benefits of foot traffic in a luxury shopping district.” 

McCartney’s suit follows from similar actions involving Saks Fifth Avenue (which is battling with the owner of Miami’s luxury Bal Habour shops after allegedly failing to pay nearly $2 million in rent), Victoria’s Secret, the Gap and Old Navy, Club Monaco, and Hugo Boss, among others, many of which have seen “commercial tenants mount attempts to obtain judicial relief from their lease obligations on the grounds that COVID-19 has rendered performance of the lease impossible and impracticable, or has substantially frustrated the purpose of the lease,” per Moritt Hock & Hamroff LLP’s Marc Hamroff and Danielle Marlow. They note that “these claims have had varying degrees of success, depending in large measure on the particular judge assigned to each case.” 

In accordance with most retail leases, with many expensive outposts on some of the most famous shopping streets and establishments in the U.S. coming under the microscope as result of COVID, “the tenant takes on most of the risk for the landlord as owner,” according to Boyarsky Schiff, Otero, Raker, and Moore, who state that while such leases have force majeure or excusable delay clauses that carve out the payment obligations of the tenant and that “toll certain performance obligations affected by the pandemic, such provisions are generally not broad enough to run to the financial obligations by a tenant contained in a lease.” In fact, they note that “most leases expressly state that events of force majeure do not curtail the tenant’s obligation to pay rent,” which is “in line with the long-standing precedent in most jurisdictions, and in most lease documents, that financial inability/hardship is not a force majeure event.” 

As such, “In most instances, tenants will remain legally obligated to pay rent.” However, Boyarsky Schiff, Otero, Raker, and Moore encourage landlords to “take a number of business considerations into account prior to responding to tenant requests” in light of the broad impact of COVID-19, which has presented landlords and retail tenants with unprecedented challenges and opportunities.” The ramifications of COVID, they say, makes it “critical that the landlord-tenant relationship remain positive and strong in order for both parties to weather this pandemic and succeed in the future.”

*The case is Valentino USA, Inc. v. 693 Fifth Owner LLC, 652605/2020 (N.Y. Sup).