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By
Reuters
Published
Jan 13, 2011
Reading time
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"Aspirational shoppers" to fuel '11 luxe rebound: execs

By
Reuters
Published
Jan 13, 2011

Jan 12 - Wall Street's continuing rally and the improving finances of America's wealthy will keep luxury spending's hot streak alive in 2011, and the less well heeled are also poised to join the party, top retail executives said.



Rich shoppers have recovered far more quickly from the recession than middle and lower income consumers, and are hitting stores in droves to snap up cashmere sweaters, designer dresses and diamond necklaces at stores like Saks Fifth Avenue and Neiman Marcus.

Executives expect U.S. luxury sales to continue improving as the economy recovery trickles down to the middle class, particularly as so-called "aspirational" shoppers -- consumers who have fancy tastes but cannot afford the most expensive items -- feel more confident.

"The aspirational shopper is coming back, because they like brands, but they're still just putting their foot back in the water," Saks Inc Chief Executive Steve Sadove said.

French luxury purveyors Hermes and LVMH were among the first companies after the financial crisis ebbed to see sales soar as the ultra rich pampered themselves again.

Meanwhile, "affordable luxury" companies such as Polo Ralph Lauren and leather goods maker Coach Inc also benefited as the upper middle class resumed spending.

Polo Ralph Lauren shares hit an all-time high in December.

The stock market rally in 2010, which saw the Dow Jones Industrial Average rise 11 percent, has helped woo middle of the road customers back to stores.

"A lot of the lost wealth has been restored," Ira Kalish, director of global economics at Deloitte, told Reuters.

Store chains like Saks suffered through some dramatic declines during the economic crisis. But it and its peers are rebounding.

In December, sales at Saks stores open at least a year, or same-store sales, rose 11.8 percent. Rival department store operators Nordstrom Inc and Neiman Marcus Group also reported strong gains.

"It's a different world than it was a year ago," Saks' Sadove told Reuters on the sidelines of the National Retail Federation conference. "Consumers are tied to how they feel about the stock market, and the markets have held up well."

Upscale retailers have had the extra benefit of catering to a clientele willing and able to pay full price, unlike middle-of-the-road chains like J.C. Penney Co and Liz Claiborne's Lucky Brands stores, which still have to watch their prices.

"When they see something they like, price is not an issue," said Claudio Del Vecchio, CEO of Brooks Brothers parent Retail Brand Alliance.

Even as many middle class shoppers are still being careful, they are willing to spend a bit more on quality, said Macy's Inc Chief Executive Terry Lundgren.

Macy's upscale Bloomingdale's chain, which accounts for about 10 percent of company sales, has been enjoying gains in line with those of other upscale department stores.

"People will buy expensive sheets or suits because they last longer," Lundgren said.

The surge in luxe spending has also buoyed jewelers. Double-digit percentage gains in high-end jewelry sales at Tiffany & Co and Signet Jewelers Ltd's Jared chain over the holidays prompted both companies this week to raise their profit outlooks.

Even struggling mid-tier Zale reported strong holiday sales.

While U.S. luxury goods purveyors wait for the U.S. market to recover more, many have turned to China for growth, whose emerging middle class can't seem to get enough of Western goods such as Hermes scarves, Louis Vuitton handbags and Coach wallets.

A Boston Consulting Group report last month estimated that China would surpass the United States as the world's largest luxury market within five to seven years. Tiffany reported holiday sales in Asia, excluding Japan, rose 23 percent over the 2010 holiday period.

Back home, unemployment has fallen far more quickly for educated and wealthy Americans, who are happily spending again, meaning "aspirational" luxury spending still has a way to go.

"High net income, high net worth households are leading the way," said Moody's Analytics chief economist Mark Zandi.

By Phil Wahba
(Reporting by Phil Wahba; Editing by Bernard Orr)

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