U.S. Luxury Retailers Face Grimmest Holiday Season

By Cotten Timberlake

 Nov. 5 -- Luxury retailers may suffer the industry's biggest reversal of fortune during the holidays as the global financial crisis dents the wealth of the richest Americans.

Sales at Saks Inc., Nordstrom Inc. and Neiman Marcus Group Inc. stores open at least a year may decline as much as 3 percent in November and December after advancing 5.2 percent a year earlier, according to the International Council of Shopping Centers trade group.

The 8.2 percentage point swing may be the biggest of the seven retail segments that the New York-based ICSC tracks. The drop in demand may signal that America's wealthiest consumers are retrenching more than the rest of the country, avoiding luxury purchases while the U.S. loses more jobs and home foreclosures rise.

``Conspicuous consumption is less fashionable,'' said Melissa Otto, a senior investment analyst at American Century Investments in New York who tracks the luxury retail market. ``There is a psychological ethos now that people don't want to jump out and be big spenders.''

Tomorrow Seattle-based Nordstrom will probably report a 13 percent October sales decline, and Saks's drop may be 12 percent, according to the average estimates of analysts surveyed by Retail Metrics LLC. Dallas-based Neiman's sales will retreat 14 percent, said Carla Casella, an analyst at JPMorgan Chase & Co.

Luxury Vs. Discount

For five years luxury retailers outpaced low-priced chains. The projected drop this year would be the group's first since 2002, the year the ICSC began keeping the records.

Among the sectors, discounters may see the biggest improvement this holiday season, more than doubling their gain in sales at stores open at least a year to 2.5 percent from 1.1 percent a year earlier, the group estimated.

Taken together, comparable-store sales for all the 36 chains the ICSC tracks may have their worst performance since 2002.

Neiman Marcus's comparable-store sales dropped 13 percent in September. Those purchases first slid in February after 58 consecutive months of gains.

Julia Bentley, a spokeswoman for New York-based Saks, as well as Nordstrom's Brooke White and Neiman Marcus's Ginger Reeder declined to comment.

Even as the U.S. economy began to slow in recent years, luxury retailers proved largely resilient, said George Whalin, president of Retail Management Consultants in San Marcos, California.

``I don't see that happening this year at all,'' Whalin said.

Connecticut, Long Island

Connecticut-based luxury clothing retailer Mitchells is among those making adjustments. Co-President Bob Mitchell said his company had to let staff go because of the spiraling financial crisis.

Sales, which held steady in September, faltered in October, he said yesterday in a telephone interview. The job cuts at the company, which sells Prada and Hermes, were ``not major,'' Mitchell said.

``In October, business was definitely more challenging,'' Mitchell said. ``People are still buying luxury products, but they are buying less. People are taking a little bit of a breather.''

The company employs about 350 people at Mitchells in Westport, Connecticut; Richards in Greenwich, Connecticut; and Marshs on New York's Long Island.

Westport, with a median family income of $193,540 and a median home price of $1.2 million, ranked fifth in CNNMoney.com's 2008 survey of top-earning U.S. towns. Greenwich came in 14th.

`Not Feeling Rich'

As U.S. consumer spending has slowed, Saks shares have sunk 74 percent this year, and Nordstrom's have lost 56 percent. Neiman Marcus is owned by Warburg Pincus LLC and TPG Inc.

Affluent consumers are holding back after more than 100,000 financial-sector employees lost their jobs and the values of stock portfolios and homes shrank, said the group's chief economist, Michael Niemira.

``The rich are not feeling rich,'' said Niemira. ``So they are not spending to the same degree.''

Lisa Blair, a 38-year-old New Yorker who works for a skincare company, plans to spend about $3,000 on holiday gifts this year, a 40 percent drop from 2007.

``It's just not the time to spend a lot of money,'' said Blair, whose household income is above $200,000. ``We're just not sure about the economy.''

Decreasing Confidence

Confidence among U.S. buyers of luxury goods fell to the lowest level in at least four years, led by a drop in spending by the wealthiest Americans, Unity Marketing said Oct. 17.

So-called ultra-affluents, with annual incomes of at least $250,000, cut spending by 20 percent in the first nine months of the year, according to the Stevens, Pennsylvania-based company, whose Luxury Consumption Index slid almost 11 points to 40.3 at the end of the third quarter. The figures include purchases of fashion accessories, automobiles, home furnishings and dining.

The wealthy are also trimming spending because ``they don't want to appear out of step'' with their employees, said Harrison Group's Jim Taylor. His Waterbury, Connecticut-based luxury research firm in mid-September surveyed 614 individuals with a median income of $325,000.

Holiday spending may fall 6 percent among households with incomes of at least $100,000, Harrison Group estimated.

Luxury consumers will buy fewer presents for loved ones and may instead purchase gifts for the whole family, such as vacations, Taylor said.

Crossed Off

Jewelry, fashion and accessories will be the categories that are scratched off holiday shopping lists the most, he said.

For luxury department stores, sales declines at this time of the year will hurt. Nordstrom, which has 108 namesake stores, garnered 23 percent of its annual revenue in November and December last year.

The more than 200 luxury department stores may not be the only ones feeling left out this holiday season. Secondary people on shopping lists will also get dropped, Taylor predicted. ``We're going to cut out the brothers and sisters this year.''

Omitting siblings is exactly what Blair plans to do.

She said she'll focus on gifts for kids, including her own 15-month-old son. For her mother, Blair bought Hermes tableware, on sale.

``Christmas is my favorite time of year in Manhattan, and it's a wonderful time if you have children,'' Blair said. ``We'll make it work. We'll cut out where we have to, and we won't where we don't.''