Luxury shops to suffer less than many this holiday

By Aarthi Sivaraman - Analysis

NEW YORK (Reuters) - While most of the U.S. retail world is bracing itself for a tough holiday season, luxury retailers will face far less pressure as high-end shoppers shrug off housing trouble and pricier fuel.

Even among luxury retailers, only the upper crust will escape unscathed, as the lower end is starting to crack under the economic pressures, industry experts and retailers said.

U.S. consumers have recently curbed spending as they battle higher prices for gasoline and food on top of a crumbling housing market, alarming investors and retailers alike.

Still, luxury companies have held up more than others, as the rich don't have the same worries as the average U.S. consumer, said Fred Crawford, managing director of AlixPartners, a consulting and financial advisory firm.

"There is a group of consumers who are relatively immune to ... gas prices, rising interest rates, price of heating or cooling their homes ... layoffs -- the retailers that serve them are relatively immune," Crawford said.

"At the high end, people will do well."

Indeed, retailers such as Saks Inc and Polo Ralph Lauren Corp have confirmed the strength of their rich shoppers.

"The higher-end luxury price points have not seen a slowdown and we feel quite good about that consumer's buying power at this point," Saks Chief Executive Stephen Sadove said on Tuesday.

Executives at Polo Ralph Lauren said this month high-end consumers, both in the United States and abroad, were spending strongly, and were expected to keep it up through Christmas.

But while the high end is safe, Sadove said consumers at the "entry price points" of luxury have come under pressure.

"I think the consumer is clearly seeing some impact, especially at what we would call our good zone" or bridge price points, he said.

COACH OR WAL-MART?

The problem with lower-end luxury shoppers was that during good times, they might splurge at, say, handbag maker Coach Inc, Crawford said.

But in times of trouble, when such free spending is a problem, those consumers would probably shop closer to their needs and go to Wal-Mart Stores Inc instead, he said.

To that end, Coach, which sells handbags from a little under $200 to above $1000, has warned of weak traffic in its stores, and forecast earnings below Wall Street expectations.

"Rightfully so," said Milton Pedraza, chief executive of the Luxury Institute, pointing out that Coach sold to "affluent consumers, (who are) not so much wealthy," and who might tighten their belts this season.

Affluent consumers, Pedraza said, are those with annual incomes of $100,000 to $300,000. Adding to the worry about this sector is the fear of smaller Wall Street bonuses this year.

The wealthy, by contrast, are worth anywhere between $1 million and $10 million, Pedraza said.

Among those expecting strong holiday sales are U.S. jewelers, experts said.

For online jeweler Blue Nile Inc, sales of items over $25,000 grew by more than 50 percent in its third quarter, marking its strongest sales growth. In that period, it sold an engagement ring worth $190,000, and had 10 orders over $100,000 each.

For the fourth quarter, which includes the holiday period, Blue Nile expects sales to grow at a stronger rate than the 27 percent growth in the third quarter.

Tiffany & Co, a more traditional jeweler, has forecast 14 percent sales growth this year and boosted its full-year forecast.

Others expected to ride the wave of strong sales are Italian jeweler Bulgari and French jeweler Cartier, owned by Richemont SA.

POPULAR ITEMS, DESTINATIONS

For Tiffany and others like Coach and Saks, strong tourism and the weak U.S. dollar will boost holiday sales in their flagship stores in Manhattan.

"I had not thought tourism would prop us up so much," Pedraza said. "But the dollar has devalued so much that it has become a nice arbitrage for foreign buyers."

"The foreign buyer is here big time," said Joanne Podell, executive director for Cushman and Wakefield's retail services.

Luxury retailers with an online presence are also forecast to do well, as consumers become comfortable with expensive online purchases and more bargain hungry.

High-end electronics, jewelry and accessories like handbags and watches would be popular this season, Pedraza said. But "there is no 'it' bag out there, no 'it' (item)," he added.

Despite the mixed views on luxury retail, Podell offered a note of encouragement. "The experience of shopping, buying, giving gifts is important to us. I don't think we will give that up readily."

(Editing by Braden Reddall)