The rich might be different from you and me. But in this tightfisted holiday season, they too are holding fast to their (designer) wallets.
A stroll down Beverly Hills' famed Rodeo Drive confirms what analysts already know: These are still lean times for luxury retailers. On a recent afternoon there were more salesclerks than customers at Louis Vuitton. Only tourists strolled through nearby Tiffany & Co., and the aisles of Barneys New York were free of crowds.
Andrew Glassford, a well-dressed executive from Dallas, was enjoying the sumptuous window displays. But the dearth of shopping bags on his arm summed up the mood of wealthy consumers this year.
"We're spending," he said. "But we're spending a little more wisely."
Overall U.S. retail sales rose 1.3% last month, more than double what analysts had expected, according to figures released Friday by the Commerce Department. But luxury shoppers still aren't flashing their platinum cards at anything near their pre-recession levels. Though some upscale retailers are confident that the worst is over, most are projected to end the year with double-digit percentage declines in revenue.
"Looking specifically at luxury, we expect sales to close 2009 down 16% from last year," said Erika Serow, a partner in consulting firm Bain & Co.'s retail practice.
That's worse than 2008, when luxury retailers saw their annual sales slide 7% after a relatively strong first half of the year. Still, last year's holiday season was particularly damaging to retailers' profits. Bloated with inventory, stores were forced to slash prices by as much as 80% to move the merchandise. This year, they're better prepared, with leaner, lower-priced inventories and traffic-generating promotions.
Burton M. Tansky, chief executive of Neiman Marcus Group, said the holiday outlook was "optimistic, but a disciplined optimistic."
"We're trying to make our stores even more exciting . . . with improved service levels and very focused assortments," he said.
Neiman's is peddling more merchandise at lower prices, even in its acclaimed holiday catalog. The glossy book is best known for over-the-top indulgences such as the $20-million submarine offered in 2000, but this year's edition is focused heavily on items priced at $250 or less.
Tansky said the chain was "absolutely not" planning deep discounts this year. "There is no reason to," he said. "Our inventories are very much managed properly and are in sync with sales. Last year was an aberration."
Experts are ready to declare the fourth quarter a success if luxury retailers sustain only minor losses.
"Flat is the new up," said David Winter, CEO of the Luxury Marketing Council of Southern California, who said jewels and airplanes are still selling among the ultra-wealthy.
Wall Street seems confident that more high-income consumers will start spending soon; stocks of luxury retailers are up big this year. Tiffany shares have gained nearly 82% in 2009; Nordstrom Inc. is up 179%, and the value of Saks Inc. stock has increased just over 43%.
After five straight quarters of losses, Saks declared a surprise $6.3-million profit in the third quarter, thanks in part to less frequent discounting of its merchandise.
"The high-end customer is back," said Saks CEO Stephen Sadove. "They may be buying one pair of Louboutins instead of two pairs, or a very special high-end piece, or they may be buying at the lower end of the price range" in their favorite designers.
But "they aren't trading down brands," he said.
Though year-over-year November sales were down 26% at Saks, Sadove called that decrease an "apples and oranges" comparison.
Last year "we were giving it away," Sadove said. "This year . . . we came into the quarter with 22% less inventory, and we bought a lot less product. So you're starting to see items being sold out."
Sadove said he expected holiday sales to be down in the high single digits, but he anticipated improved profit.
Shoppers evidently remain thirsty for luxury goods, but not the luxury prices. At the Desert Hills Premium Outlet in Cabazon, customers have waited hours in line to shop at Coach, Rock & Republic and Burberry, even days after Black Friday.
In Beverly Hills, however, shoppers hunted for deals, postponed purchases and thought twice before buying discretionary items.
"I hate to pay retail, especially when I know it will be marked down in a few weeks," said Carolyn Korzen of Chicago as she surveyed Barneys for good values. "I'm willing to wait . . . because I'm not that desperate," she said.
Some luxury consumers have vanished altogether, especially the "aspiring" shoppers with annual incomes below $250,000, said Pam Danziger, founder of Unity Marketing, a consulting firm specializing in luxury. These consumers fueled the luxury market in recent years, armed with home equity lines of credit and fistfuls of credit cards. Now that easy money has largely vanished.
