The luxury business is making a comeback, but it is relying on fewer and wealthier consumers.
Ultra-affluent households, or the top 2 percent of the U.S. population, are spending again after going into hiding during the worst recession since World War II.
These wealthy shoppers are snapping up Rolls Royces, whose first-quarter sales soared 60 percent, and taking outings to Sotheby’s, where auction sales commissions more than doubled in the first quarter. They also are stocking up on Champagne: LVMH Moet Hennessy Louis Vuitton SA, maker of Krug and Veuve Clicquot, saw its first-quarter sparkling wine sales rise 33 percent.
Jeweler Lester Lampert, the owner of a namesake boutique on Chicago’s tony Oak Street, said he has sold more bracelets and earrings priced above $100,000 in the first four months of this year than he can remember ever doing.
“Last year, they weren’t coming in,” Lampert said. “They held back because of the economy. I think now they have more confidence. They’re less hesitant.”
Luxury market expert Pam Danziger said it’s all well and good that the big spenders are back. But the more pressing problem is that aspirational shoppers — those consumers who are well-to-do but not quite wealthy — have yet to return to the luxury market and show no signs of coming back.
“They are missing in action,” said Danziger, owner of Unity Marketing, a Pennsylvania-based research firm. “They boosted the luxury economy so much in the pre-recession years because they were feeling affluent, and they don’t feel affluent anymore. They’re back to being middle-class consumers.”
There have been plenty of signs this year that the stranglehold the recession had on luxury consumer spending is easing, Danziger said. But the ultra-affluent — defined as households with annual income above $250,000 — can’t support the huge luxury economy that existed before the recession, she said.
Luxury sales peaked in 2007 at $228.5 billion, before dropping 2 percent in 2008 and falling 8 percent in 2009, according to Bain & Co. The Boston-based consulting firm forecasts luxury sales to rebound this year, gaining 4 percent, largely helped by growth in China.
But the luxury landscape won’t be like it was. The worldwide economic crisis of 2009 is “structurally” changing the luxury market, Bain said in an April report. There will be fewer brands and fewer stores targeting the superrich.
After years of calling everything from a Starbucks latte to a J. Crew sweater a “luxury,” experts predict the most powerful luxury firms will return to positioning themselves as out-of-reach for all but the elite.
It is a strategy that Danziger believes could backfire, saying her research shows even the richest households shop at both Fendi and Banana Republic. The recent flood of online designer shopping sites such as Net-a-Porter.com, Gilt.com and HauteLook.com — to name a few — are changing the equation as well, making it easier to find deals on all sorts of designer goods.
Neiman Marcus Group and Saks Inc., for their part, are taking the opposite tack. Both luxury retailers are expanding their outlet store divisions. And they are working with designers to bring more items into their main stores that are priced to be accessible to upper-middle-class shoppers.
Saks still carries Gucci and Prada, but it has shifted its emphasis away from the highest end of the designer lines, said company Chairman and Chief Executive Stephen Sadove at a Citi retail conference in March.
Neiman Marcus is going a step further, testing a discount retail concept for aspirational shoppers who fled its stores during the recession. The retailer opened the new concept store in a wealthy section of Dallas in April, and for now is calling it Last Call after its outlet division, but plans to create a new name.
“The aspirational customer really got hit hard, and we felt that they kind of vacated our stores last year,” said Neiman Marcus CEO Burt Tansky during the retailer’s quarterly earnings conference call in March. “We’re making every effort to bring them back.”
