Luxury aims high, and less high, to keep shoppers

NEW YORK (Reuters) - Luxury retailers are again cloaking themselves in an aura of exclusivity after years of cultivating less affluent consumers, struggling to keep the loyalty of both sets of shoppers as a recovery takes hold.

The two-pronged strategy means store chains such as Saks Inc (SKS.N) and Nordstrom Inc (JWN.N) plan to offer more exclusive merchandise while expanding the range of prices within a label from high to low.

"Luxury is at multiple price points -- consumers want their same brand, but want it at a better price point," Saks Chief Executive Steve Sadove said at a National Retail Federation conference in New York.

The approach is necessitated by the state of the luxury market. While sales showed a marked improvement over the 2009 holiday shopping season after a bloodbath in 2008, high-end retailers do not see a real comeback for another two years.

"While it's not good yet, it's much less bad, and you're now looking forward and saying, 'how do you start bringing back the excitement?" Sadove said.

He aims to bolster exclusive goods to account for as much of 30 percent of Saks merchandise. Sadove expects more rough patches in the first half of 2010 and sees sales picking up in the second half of the year.

The trick will be not alienating the core luxury consumer that helped keep such chains aloft during the recession and after.

"Appealing to the aspirational consumer will require a greater focus on the issue of value, yet such an appeal could offend the sensibilities of high-end luxury shoppers," said Ira Kalish, the director of consumer business for Deloitte Research.

As a result, there will have to be more segmentation and retailers will have to prompt suppliers to create "sub-brands," Kalish added.

SIGNS OF SPLURGE

Upscale jeweler Tiffany & Co (TIF.N) reported on Tuesday that sales at its U.S. stores open at least a year rose 12 percent over the holidays, echoing the strong performances of Saks and Neiman Marcus Group Inc NMRCUS.UL, which last week reported encouraging December sales.

Most luxury retailers got a lift in the past decade from the so-called "aspirational shoppers" -- less affluent buyers who sought to surround themselves with the accoutrements of a wealthier lifestyle.

But these shoppers were the first to abandon their free-wheeling spending in the downturn and analysts do not see their ability to spend coming back in the near term.

"Luxury is not going anywhere, but people will still be discerning and we will be nowhere near 2006-2007 sales levels this year," said Milton Pedraza, CEO of the Luxury Institute.

Luxury shopping will take at least two more years to reach those levels again, assuming that U.S. unemployment falls to about 6 percent from its current 10 percent levels, he said.

Still, spending should get a lift in the coming months from generous Wall Street bonuses, Pedraza said.

MORE EXCLUSIVE

Sadove said exclusivity is a key tool for ramping up sales.

"People want to go into a Saks or a Neiman's or wherever they're going and get things they can't get everywhere else," he said.

Analysts agree with that strategy and say luxe retailers need to go even further, offering products from a top brand at more price levels to capture sales from those "aspirational shoppers," while they rebuild their wealth in the coming years.

With impulse purchases all but gone, retailers need to find ways to prompt consumer to make their purchase quickly rather than wait until their fifth trip to a store, one analyst said.

"You have to create urgent reasons why people need to buy these things now," said John Long, a retail strategist at Kurt Salmon Associates, who suggested retailers offer more limited runs of exclusive items.

But threats to a luxury comeback remain, experts said.

Much of the boom in the last decade was fueled by tax cuts for the wealthy implemented by former U.S. President George W. Bush, said Allen Questrom, a former CEO at J.C. Penney Co Inc (JCP.N) and a current Wal-Mart Stores Inc (WMT.N) director.

"Higher taxes on the wealthy could hurt luxury retailers," Questrom added.

(Reporting by Phil Wahba; editing by Michele Gershberg and Andre Grenon)