Full luxury recovery still fuzzy: execs

NEW YORK Thu Jun 3, 2010 6:12pm EDT

1 of 3. Saks Fifth Avenue CEO Stephen Sadove talks to reporters during a Reuters Global Luxury Summit in New York June 2, 2010.

Credit: Reuters/Jessica Rinaldi

NEW YORK (Reuters) - The world's wealthiest consumers kept their taste for expensive goods through a global downturn, but their more middle-class compatriots still striving for the good life may take years to return, if ever.

Sales of luxury goods, such as designer clothes, fine jewelry and high-end handbags, slipped last year as conspicuous consumption fell out of fashion in the recession.

Sales trends have since improved, but a full recovery is still uncertain as frugal habits may last a generation, luxury executives told the Reuters Global Luxury Summit this week.

Many brands are adapting their strategies accordingly.

Sales trends are "better than they were at the depths of the recession. The consumer's not shopping their closet," said Saks Inc SKS.N Chief Executive Officer Stephen Sadove in New York. "They're coming in and buying across all categories but it's not at levels that you saw pre-recession."

"Do I think it'll ever get back to the levels of pre-recession? Sure, but it's going to take time," he said, citing a horizon of a few years.

Barneys New York is also seeing customers come back. Its executives are encouraged by the U.S. stock market's overall rally from the depths of the global financial crisis.

"If it drops a little bit or if it has a little bit of volatility, I'm not sure that's going to hurt us," said Vince Phelan, Barneys' chief financial officer. Michael Celestino, director of Barneys stores, said they may also attract more people who are truly wealthy than some other chains.

WEALTHY VS ASPIRATIONAL

Many in the industry view buyers of luxury goods in two different camps: those who are truly wealthy and those who sometimes shop like they are.

"The wealthy haven't really changed their shopping patterns other than frequency," said investment banker William Susman, chief operating officer of boutique firm Financo Inc. "It's that aspirational shopper that we think has really shifted."

Milton Pedraza, CEO of the Luxury Institute, said "aspirants" are generally shoppers with an average household income of about $150,000 to $300,000. They helped prop up the industry during the economic boom of the previous decade, many by living beyond their means. They cut back suddenly and dramatically after the financial crisis erupted in late 2008.

He said they will only come back fully once unemployment reaches 5 percent, a level he admitted could take five years. The U.S. unemployment rate is currently around 9.9 percent.

U.S. spending at the highest-end department stores, restaurants, grocery stores and leather goods stores fell 2.9 percent in 2008 and 8.2 percent in 2009, according to SpendingPulse, after jumping 10 percent in 2007.

SpendingPulse, which comes from MasterCard Advisors and includes estimates for U.S. sales across all payment forms, said luxury spending has already reached $4.05 billion so far in 2010, up 14.3 percent from the same period a year ago.

The most critical time for the retail industry is the fourth quarter, when year-end holidays spur a flurry of shopping. Consultancy Bain & Co, which has said global luxury spending fell 8 percent in 2009, has forecast a 4 percent increase for 2010, helped by improving equity markets.

Handbag maker Longchamp said sales jumped 25 percent between February and April, reaching record levels, its chief executive Jean Cassegrain told the Reuters Summit in Paris.

CHANGED FOREVER

Still, some executives believe there has been a permanent change in the consumer psyche.

"It will be interesting to see five years from now what people say they don't do anymore, or what they do differently as shoppers," said Susan Lyne, CEO of Gilt Groupe, which operates a members-only website selling deeply discounted high-end goods. "I'd bet you it will be fairly profound."

"You can talk to any hundred people on the street and they will tell you they think differently about buying full-price because they've seen so many opportunities to buy at a discount," she said.

The steep markdowns seen in 2008 and 2009 caused many consumers to question the intrinsic value of certain pricey goods, said Coach (COH.N) Chief Executive Lew Frankfort. Now they look for better quality at a better price, he said.

"Consumers are smart and they have long memories," Frankfort said. "I'm of the view that things have changed forever."

To appeal to more cost-conscious consumers, Coach last year launched more handbags in the $200 to $300 range, including its Poppy line, whose bright colors and graphics make it appealing for younger consumers. Without cutting any of its prices, the move lowered the brand's average price by roughly 15 percent.

Fashion house Oscar de la Renta made a similar move, changing the design of more of their clothes to allow them to charge less for the merchandise.

Both Coach and Oscar de la Renta said they planned to maintain the broader-priced assortment moving forward. But they said their higher-end products -- be they $800 handbags or $20,000 gowns -- are still selling well.

"I think the idea that luxury is out is bunk," said Oscar de la Renta CEO Alex Bolen. He said consumers are still shopping but are more thoughtful and savvy.

"It better damn well be unique, and it better be luxury. If it's a me-too product, good luck," he said.

(Reporting by Martinne Geller, editing by Matthew Lewis)