Luxury stores foresee weakness
For a while, it looked as if the worries plaguing ordinary Americans wouldn’t trouble shoppers with well-padded wallets.
No more. Major retailers that recorded better-than-expected sales last month warned about flat results or worse this month -- upscale chains included.
Luxury retailer Saks Inc. led the charge by reporting an exceptionally strong 25.7% gain in November same-store sales, a key measure of a merchant’s health, but then immediately said December sales would be either flat or “modestly negative.”
The main reason for the huge divergence: A quirk in retailers’ reporting calendars gave them a full extra week of revenues last month compared with November 2006, propping up the month’s numbers and shrinking estimates for December.
Higher-end stores finally are being dinged by customers’ response to high gasoline prices, rising mortgage payments, faltering home values, the gyrating stock market and fears of a recession. “We’ve seen the weakness broaden out,” said Michelle Tan, a UBS analyst.
It’s not the wealthiest Americans who are affected but the merely well-off, people who can shop in the swankiest stores but not in all departments.
“The new customer of Saks and Neiman -- what they call the ‘aspirational customer’ -- is definitely pulling back,” said John Lahman, an analyst with KDP Investment Advisors.
A growing number of chains are noting the slowdown in their sales and earnings reports, including Nordstrom Inc., Neiman Marcus Group and Coach Inc. One problem for these stores is that people who last year were dumping JCPenney for Macy’s or ditching Kohl’s to shop at Nordstrom have retreated, said Marshal Cohen, chief industry analyst for NPD Group.
“Everybody was moving upward,” he said. “That’s not happening now.”
It certainly isn’t for Lynne Blair, 29, a nurse who swore off Nordstrom, Saks, Neiman Marcus and the entire Fashion Island shopping center in Newport Beach after she and her husband bought a new home in La Mirada.
“No more Nordstrom,” she said outside a Kohl’s in Huntington Beach. “It’s so sad.”
Retailers have been bracing themselves. Traffic at the major retail container ports dropped below last year’s levels for the fourth month in a row in November as merchants managed inventories in anticipation of a restrained holiday shopping season, according to the monthly Port Tracker report from the National Retail Federation and Global Insight.
The holiday season began sluggishly last month after weak sales in September and October, when the weather was too warm to spark purchases of fall merchandise. Retailers got a strong boost the Friday after Thanksgiving, when people jammed stores to take advantage of “doorbuster” sales.
That, and cooler weather, helped push same-store sales, or sales at stores open a year or more, up 3.5%, according to an International Council of Shopping Centers report released Thursday. Michael Niemira, the council’s chief economist, still expects a 2.5% gain for November and December combined.
Nordstrom’s same-store sales fell 2.4% in October -- the lowest level since February 2002 -- and rebounded in November with a 8.7% gain. And Nordstrom was one of many, including Macys Inc., Kohl’s Corp., Target Corp., and J.C. Penney Corp., cautioning that the calendar shift that helped last month could pull results into negative territory this month.
Research firms that track the spending of well-off households see that something is amiss.
The American Affluence Research Center’s most recent survey detected caution among households with an average income of $256,000. Its fall future spending index average dropped to its second-lowest level since tracking began in 2003. And the percentage of respondents who checked “preservation of capital” as their primary investment objective rose to its highest level since fall 2004.
“They definitely have a negative outlook about future business conditions,” said Ron Kurtz, president of the research and consulting firm.
A survey by Unity Marketing showed that luxury consumers’ confidence sank in the third quarter to its lowest level since 2004. The amount that “affluent” consumers spent on luxury goods dropped 21% to an average of $12,142, from $15,283 in the preceding three-month period. The trimming occurred among households with incomes of $75,000 to $149,999. Spending was flat among those making $150,000 and above.
“If consumer confidence continues to weaken among the ranks of the affluent, it will be a testing time for luxury marketers and brands,” Unity Marketing President Pam Danziger said in her report. “Many luxury brands are going to discover just how dependent they have become upon consumers’ penchant to ‘trade up’ to more-luxurious offerings than they otherwise could afford.”
Huntington Beach resident Paulette McCulley and husband Bill have traded down since she lost her job as an executive assistant for a home building firm in September. Before, they shopped at Macy’s, Tommy Bahama and Pottery Barn.
“We’re hitting Target and Kohl’s now,” she said. “They’re practically giving stuff away.”
The housing industry’s troubles have far-reaching effects, and well-heeled consumers are not immune, said Ryan Sweet, an economist with Moody’s Economy.com, which maintains that for every dollar change in housing wealth, there’s a 5-cent shift in consumer spending.
“People are seeing less equity in their homes. In some cases they’re even seeing their homes lose value,” he said. “Where there’s a period of considerable uncertainty, consumers will pull back and increase their savings.”
