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Affordable luxury brands are booming in popularity

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Bets on the top-performing retailer this holiday don't favor the storied haute couture companies — not Chanel with its $4,500 handbags, nor Neiman Marcus and its $150,000 bespoke falconry set.

Instead, it's Michael Kors Holdings — an American sportswear brand from a sassy former "Project Runway" judge — that's roundly predicted to crush Christmas.

The company is what's known as a bridge brand, operating on the low end of luxury. Its handbags generally cost less than $500. But the sector's mix of just-high-enough prices and accessible-yet-glamorous design makes brands such as Kors, Kate Spade and Tory Burch like catnip for consumers who are sick of curbing their spending but still wary of an uncertain economy.

"American consumers have been sitting on their hands for many years," said Bob Shullman, founder of the luxury-focused Shullman Research Center. "They're frustrated and they want to treat themselves. But they're also trying to survive, so they have to find something to splurge on that's not going to break the bank."

Well before Black Friday, the Kors store at the Citadel Outlets in Los Angeles had a line out the door. The company boasts of trying to "appeal to a younger demographic." The social-media-savvy brand gained nearly 34,000 new followers in the 18 hours after launching the first-ever Instagram ad last month.

Kors' stock, which fell 27 cents Thursday to $83.92, is up 64.5% so far this year and 246.8% since its debut nearly two years ago. During the quarter ended Sept. 28, revenue soared 38.9% and earnings per share rocketed up 44.9%.

Morgan Stanley analysts expect the company "to deliver the single best sales growth in retail this holiday." Rick Caruso, a real estate magnate who owns a phalanx of Southern California shopping centers, said Kors' sales on his properties "have just exploded this past year."

"Michael Kors kills it," Caruso gushes. "He is so relevant."

Other upscale brands are taking the hint, targeting young shoppers and venturing into e-commerce and more affordable product lines.

It's not that top-line luxury is suffering. Euromonitor expects luxury spending to rise more than 35% globally over the next five years.

Another consulting firm, Bain & Co., says the gauge will reach roughly $300 billion this year, up from $293 billion last year. The U.S. is by far the largest luxury market by revenue, drawing more than $86 billion, followed by Japan and Italy. MasterCard Advisors said that the luxury sector, sans jewelry, enjoyed the biggest revenue spurt last month and was the only category to see a double-digit sales increase year over year.

But it's Kors and other relatively affordable luxury brands that are booming in popularity. The Kate Spade label posted a 76% increase in net sales in the three months ended Sept. 28.

"The market for these brands doesn't seem subject to the recession — their business is consistently getting better and better," said Ron Friedman, leader of the retail practice at consulting firm Marcum.

Take Coach, a bridge luxury brand where a wallet can be purchased for less than $200.

The American Affluence Research Center found in a fall study that a third of wealthy respondents had owned Coach products, by far the most out of a group of brands that included Louis Vuitton, Hermes, Gucci, Chanel, Prada and Burberry. A quarter of respondents said they believed that Coach was overrated, less than any of the other brands.

TheDreslyn.com, which launched in Los Angeles in June, focuses on mid-tier designer brands such as Theory, Helmut Lang and Elizabeth and James. More than 48,000 total visitors a month — 75% of them under age 35 — spend an average of $525 per order. Revenue boomed 169% from September to October, with an 89% average monthly subscriber increase, according to the company.

Caruso, who professes to love bridge brands, is hoping to bring more to his properties, which include the Grove in Los Angeles and the Americana at Brand in Glendale.

"I'm much more comfortable there than in too much full luxury, because in order to drive the volume we want to drive, you've got to appeal to a broader audience," he said. "There's only so many people who are going to spend the kind of money they'd need to in a Dior store."

Emboldened by their success, bridge brands are moving into shopping areas normally crowded with couture. Tory Burch and Dsquared2 are heading to Rodeo Drive in Beverly Hills next year.

"They want to play in the sandbox with the luxury guys and be in the aspirational business," said Robert Cohen, president, Southern California, for RKF.

High-end retail brands are taking note.

"Whether they like it or not, in order to grow, they need to get some support from mass-market consumers," Shullman said. "They're experimenting now with how to do it without tarnishing their brands."

In New York this fall, Hermes opened a pop-up store — a retail model popular with easily bored millennials. The so-called Silk Bar was modeled after a retro diner and featured a photo booth, hopscotch and miniature golf.

Also, upscale brands such as Louis Vuitton and Versace will increasingly move into jewelry, cosmetics and fragrance, according to Euromonitor researchers. The strategy will enable them to offer smaller but still lust-worthy items to compete with more affordable brands.

Burberry launched its first line of color cosmetics in 2010. Gucci is rumored to be debuting its own makeup collection next year.

Italian label Fendi recently introduced a playful line of accessories called Buggies — fuzzy, face-like charms that hang from a purse. They each cost $700, which might seem cheap compared with a Fendi purse priced 10 times higher.

At South Coast Plaza in Costa Mesa one recent evening, Natalie Clayton, 35, was among the shoppers streaming into the Kors store while sales associates in more expensive outlets idled. The British aerospace commodity manager's husband was treating her to a Christmas gift, so she waltzed out with a $398 black handbag.

"I can't afford to shop there every day, but once a year, it's more in my price range than somewhere else," she said.

tiffany.hsu@latimes.com

Twitter: @tiffhsulatimes

Copyright © 2014, Los Angeles Times
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