Luxe Brands Glisten Again

The swift regeneration of the U.S. banking system—and the concomitant return of the stock market to increases unseen since 2003—has dominated the news of recent weeks. And why not? It’s all in sharp contrast to the so-called Main Street economy, where unemployment remains high and retailers continue to struggle. So, is this any time for folks to pop for a platinum-channel-set diamond bracelet? Actually, it just might be.

If holiday sales at high-end retailers were any indication, the good times might be rolling again. Last week Tiffany & Co., the world’s second-largest seller of luxury jewelry, raised its earnings forecast—this after holiday sales jumped 17 percent.

The news came just after high-end retailers like Saks, Nordstrom and Neiman Marcus reported hikes in same-store sales during the festive season, posting increases of nearly 10 percent, 7 percent and 5 percent, respectively. That’s quite a party, considering that overall holiday retail sales rose an anemic 1 percent, per the National Retail Federation.

So what happened? In contrast to Q4 of 2008 when high-end retailers were taken off guard by the global economic crisis, luxury brands did a better job managing their inventory over the past holiday season, thereby avoiding heavy discounting to drive sales.

But the main ingredient is consumers themselves—and their willingness to spend again. “These reports are extremely encouraging,” said Mary Delk, director, Deloitte consumer retail practice. “It’s indicative that consumers are considering widening the aperture of their wallets again. Those retailers are breathing a cautious, careful sigh of relief that the bad news may have bottomed out.”

Emphasis on “may,” of course. Delk cautions that the holidays tend to put shoppers in a splurging mood. It’s a bravado that invariably cools once January (and its credit card bills) rolls in. Percentage sales gains are easy to post because the earlier quarter used as a comparison was so bad. However, it’s also likely that, as the economy improves, the wealthy are leading the way back.

“People are sick of frugality and tired of holding back,” observed Milton Pedraza, CEO, the Luxury Institute. “People are starting to open their minds to luxury again. Last year, it was a case of them not wanting to look like a conspicuous consumer. Now it’s [a case of consumers] buying the best because the best lasts and has value.”
Greg Furman, chairman of the Luxury Marketing Council, concurred: “The wealthy are coming back, but they’re more value driven and selective.”

Furman’s observation was borne out last week during the National Retail Federation’s annual convention in New York where Saks CEO Steve Sadove told attendees that shoppers want to achieve a “feeling that whatever they buy is worth it. People want things they can’t get everywhere else, but they also want value.”

That desire is also underscored in new Luxury Institute research that revealed that, of the customers who shop for high-end merchandise online, 78 percent of them did so in order to find the best price while nearly as many, 77 percent, did so to compare brands. Clearly, value is luxury’s close cousin.

Just how well recovered the luxury segment is will further reveal itself this week as brands like Coach and Richemont-—parent of brands like Cartier and Van Cleef & Arpels—are due to report earnings.