Lapping Up Luxury : Shoppers Back at High-End Stores Buying for Value

It felt like the ‘80s again when Rodeo Drive store owner Fred Hayman sold the two $5,000 leather coats by designer Karl Lagerfeld.

“We would not have been able to make that kind of sale three years ago,” said Hayman, who has seen Rodeo’s fat times and lean in his 30 years as owner of Fred Hayman Beverly Hills.

As recently as 1993, Rodeo landlords were cinching their Gucci belts and giving retail tenants extra time to pay their bills. The vacancy rate climbed to 15% as stores closed left and right.

Today, Rodeo rents are at a seven-year high, the occupancy rate is nearly 100% and stores are ringing up sales at a pace not seen in years.

Luxury is back.

Encouraged by low interest rates, relatively high employment and a booming stock market, many Southern Californians are spending again, in a big way. Older baby boomers are propelling sales of luxury items. Upscale retailers are opening stores in the ritziest malls to cash in on the demand.

“Unless the stock market collapses, this will be a reasonably strong holiday sales season and an especially strong season for up-scale retailers,” said Ira Kalish, a Los Angeles-based retail economist. “These are heady days for upscale department stores.”

Some retailers are even saying the demand for high-end merchandise is as strong as in the 1980s, when ostentation was in vogue. The difference: There is now less flashy extravagance.

“Today’s interest in the high end is not the status-seeking we saw in the early 1980s,” said Michael Gould, chief executive of Bloomingdale’s.

Instead, consumers have developed a greater appreciation for value, retail analysts say. In that quest, they are willing to spend for quality.

Business is booming at Costa Mesa’s tony South Coast Plaza. While the rival Fashion Island shopping center in Newport Beach expects its new Bloomingdale’s to draw more upscale shoppers, South Coast Plaza has also been busy signing high-end merchants and expansion deals.

For example, Escada completed an expansion of its South Coast Plaza store this month. Hugo Boss, a maker of men’s suits, opened a store last week. Hermes plans to open a store next summer. And Salvatore Ferragamo, an upscale shoemaker, opened a store in February.

South Coast Plaza’s Gucci and Chanel stores are among the sales leaders of their chains. A white agate 18-karat gold ring--priced at $2,600--and a $12,500 pair of earrings crafted of cultured pearls and diamonds are strong sellers, said Joel Herman, vice president of Chanel’s retail division.

“We feel very good about our holiday season prospects,” Herman said.

The Bloomingdale’s in Sherman Oaks offered Tom Norman of Woodland Hills the kind of value he was willing to pay a high price for. Norman decided to buy some Baccarat wine goblets at $155 each for his wife.

“This will make a great gift, but it’s also an investment,” he said. “We can use it, but it’s something that will keep its value.”

Bloomingdale’s--which opened its first Southland stores in Century City, Newport Beach and Sherman Oaks this month--has attracted large weekday crowds, and some of the stores have lured as many as 30,000 shoppers on Saturdays and Sundays. Although the retailer offers moderately priced merchandise, some shoppers are more interested in Bloomingdale’s array of designer merchandise, upscale home furnishings and product exclusives.

Elizabeth Shapiro of Beverly Hills recently bought a $500 designer leather jacket for her son at the Century City Bloomingdale’s.

“That’s a good price for a quality leather jacket,” she said. “I’m very pleased Bloomingdale’s is here. Before they arrived, we were limited to a choice of Saks or Neiman Marcus for high-end merchandise.”

Consumers’ increasing willingness to pay for quality is bolstering the bottom lines of other high-end department stores:

* Earnings at Saks Fifth Avenue are up $29.6 million, an increase of 159%, during its first nine months. Saks operates at the higher end of the luxury spectrum. A clothing line such as Escada is sold only at Saks, Neiman Marcus and Escada stores.

* Annual profit at Neiman Marcus rose 24.8%. Neiman’s operates at the highest end of upscale retailing, offering an eclectic mix of unusual gift items as well as traditional merchandise.

* Earnings at the Gucci Group more than doubled during the first half of its fiscal year. Gucci is known for its luxury leather goods, especially its handbags.

* After struggling earlier this year, earnings at Nordstrom rose nearly 16% during its most recent quarter. Nordstrom has a range of prices but, like Bloomingdale’s, offers more high-end products than do traditional department stores.

Pent-up demand for clothing is a factor in the sales gains at these stores, analysts said.

Many shoppers “have not replaced their wardrobe in three or four years--that’s the reason apparel sales had been so weak,” said Kurt Barnard, a New Jersey-based retail economist. “The preference for high quality shows that consumers are being practical. Value is more than price.”

Older, middle-income baby boomers are snapping up many of these goods. Many are less concerned about price tags because they have more disposable income now that their children are on their own, said Philip Miller, chairman of Saks.

“This baby-boomer segment--those 45- to 55-year-olds--are the fastest-growing force in the marketplace,” he said. “We’re seeing more investment spending in quality products by people who can afford the price. And it’s not just apparel--it’s automobiles, fragrances and wine.”

Buoyed by lifestyle shifts, Saks is selling more clothing by designers such as Armani, Moschino and Donna Karan, Miller said. Some of the most dramatic increases have been registered at the Saks on Wilshire Boulevard in Beverly Hills, which includes a building formerly occupied by an I. Magnin store. (Saks acquired the I. Magnin site in 1995, a year after Macy’s decided to close the 12-store I. Magnin chain.) Shoe sales at the Beverly Hills Saks doubled to $8 million this year, Miller said.

Such growth is prompting other luxury barons to expand their Beverly Hills presence. For example, Jean-Louis Dumas-Hermes, head of the House of Hermes, recently hosted a champagne reception to celebrate its planned expansion from an 1,800-square-foot building on Rodeo to a 17,000-square-foot building down the street.

“Beverly Hills is a world center for elegance because it’s a luxury marketplace for the United States and visitors from the Pacific Rim,” said Dumas-Hermes, whose store is known for its silk scarves and leather handbags and belts.

The House of Escada, known for its more conservative styling, has already expanded on Rodeo by opening Escada Sport, a store that offers more casual clothing.

The older Escada store on Wilshire is generating more sales this year than any other boutique in the company’s 12-store U.S. chain. Escada’s U.S. sales are up 14%, but sales at the Beverly Hills store are up 31% this year, said Wolfgang Ley, Escada’s chief executive.

Women’s suits and chiffon dresses priced from $1,200 to $1,900 are selling well, as are ball gowns priced as high as $4,500, Ley said.

“Today, women don’t care as much about price if it’s very high quality,” he said.

The trend is a boon to Ermenegildo Zegna, an Italian producer of high-end suits. The namesake head of the company said sales are rising at his Rodeo store because more men are selecting suits of the highest quality.

“The mid-price suit maker is being squeezed,” Zegna said. “Fewer buy the $400 suit and more buy the $1,000 suit.”

Meanwhile, other high-profile merchants are moving to Rodeo Drive next year. Among them are Lladro, the famed porcelain maker.