Spend, Spend, Spend: Luxury Retailers Predict Boom for Holiday

Wal-Mart might be having a tough holiday season so far, but at the luxury end of the spectrum, over-the-top extravagance seems to be the name of the game.

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Wal-Mart might be having a tough holiday season so far, but at the luxury end of the spectrum, over-the-top extravagance seems to be the name of the game.

Just ask Gucci, which has people clamoring for its $19,800 baby blue crocodile Positano handbag. “It hasn’t even hit the stores and we have preorders,” said a spokeswoman. “It will be sold out by the time it comes in.”

Nor have shoppers blanched at the $7,200 cost of Oscar de la Renta’s tortoiseshell clutch — it’s a bestseller.

Polo Ralph Lauren reported a waiting list for the Ricky bag in gold crocodile, priced at $14,000. Other strong sellers are part of an exclusive holiday evening collection designed for Ralph Lauren stores that includes a Collection red taffeta Mirabel gown for $6,998; a Collection black beaded sleeveless shawl collar cardigan sweater, $2,598; a Black Label gold beaded gown, $1,898, and a Black Label Barton Deco evening coat, $1,998.

Hirshleifer’s at the Americana Man­hasset in Manhasset, N.Y., has sold through its stock of J.Mendel white woven mink cable sweaters, priced at $15,000. “We’re selling more of [J.Men­del’s] casual pieces, although we’ve sold plenty of sables recently,” said Lori Hirshleifer, who oversees buying and merchandising. “You don’t feel any price resistance. None whatsoever. I’m knocking on wood. You read that the economy isn’t going to be quite as strong as it was, but our business has grown tremendously. Sales on Black Friday were up 30 percent this year over Black Friday last year.”

Then there is Hermès’ Birkin bag in crocodile with white gold and diamond accents for $148,000. The bag was introduced especially for the holiday season. There is one in the window of the Hermès Madison Avenue flagship here and a handful are on display in Paris.

Dedicated luxury customers are largely immune to the vagaries of the economy, but the stock market’s strong performance in the latter half of the year seems to have erased any lingering inhibitions about purchasing expensive products. In addition, as widely reported, there is an emerging class of super-rich hedge fund managers, bankers and Internet pioneers who think in the billions, not the millions.

And brands are out to capitalize on their demands. James Hurley, luxury goods analyst at Telsey Advisory Group, said this holiday season seems to be characterized by extraordinary products with breathtaking prices. “You need that type of over-the-top, hyper-exclusive merchandise to set the aspirational tone,” he said. “It speaks to the fact that the bar gets raised higher and higher each year, especially for brands thought of as luxury resources. If you’re selling a $300 wallet and $600 handbag, you have to raise the bar for the customer to stay interested.”

This story first appeared in the December 4, 2006 issue of WWD.  Subscribe Today.

Same-store sales at chain stores rose 2.1 percent last month, according to the International Council of Shopping Centers, reflecting Wal-Mart Stores Inc.’s worst monthly performance in a decade. Luxury retailers, however, are faring far better. The ICSC is projecting a 6 percent sales increase for luxury brands in November and December, while the organization is estimating only a 4 percent sales gain for department stores.

“Everything points to the luxury category gaining share of wallet this holiday season,” Hurley said. “In terms of the growth rate for the holiday season for publicly traded retailers, our forecast is an 8 percent sales increase. For luxury retailers, we’re looking for a 15 percent increase.”

“We’ve had the best week we’ve had in seven years,” said Diane Levbarg, executive vice president of Missoni USA. “I’m in a very upbeat mood.”

Missoni is doing a big gift business with knit hats, scarves, gloves and perfume, which was launched this year. In the home division, there are candles, blankets and bathrobes. Recently arrived bathing suits and beach and resort dresses are a major classification.

“Last week was more people buying for themselves, but in the next two weeks, the ratio will shift,” said Levbarg. “People bought because they’re going to St. Barth’s and Barbados. We were prepared. We made sure we had enough key items in stock. I’m so pleased. This is a very important season.”

Hermès’ best-selling items early in the season have been scarves, ties and enameled bracelets, according to Robert Chavez, president and chief executive officer of Hermès USA.

“People are coming in and buying multiples — 40 or 50 of an item — as gifts,” he said. “All types of high-luxury items are selling well. We have a sable-trimmed scarf that’s done extremely well. Diamond watches and diamond jewelry and anything in exotic skins — crocodile, ostrich and lizard — are off to a strong start. We had a very strong post-Thanksgiving weekend, and we’re very optimistic about the holiday season.”

Versace said there was clearly an increase in traffic at its Fifth Avenue flagship last month. The Couture Snap bag, for $1,830, has been a bestseller, as have patent over-the-knee boots, at $1,840, which are nearly sold out in black and taupe. The DVI watch with diamonds, priced at $5,400, also is almost sold out.

Accessories designer Devi Kroel’s clients are ordering more custom-made products and glitzy evening bags. One European customer asked Kroel to create products for a nativity calendar for her 14-year-old daughter — one gift for each of the 25 windows. “I started with small leather goods, then moved to little clutches and handbags until the 25th, which is a $5,000 crystal-encrusted round handbag that looks like a disco ball,” said Kroel. The entire order came to $50,000.

While the nativity customer clearly had no budget constraints, Kroel said she’s noticed some price resistance from other shoppers. The threshold seems to be $2,800. “I see it once we start talking about alligator and other high-end exotic skins,” she said.

Nonetheless, Kroel is projecting a 300 percent sales increase for the holiday season. “We’re a start-up,” she said, explaining the large number. “We do a lot of Internet and phone sales.”

The executive of a European fashion house, who requested anonymity, said, “I saw price resistance in the fall with the winter clothes. The euro has never cost as much as it does now. Do you know what that does to the price of my clothes? The resort clothes are always much less expensive than the winter clothes. Thank God I’m not seeing price resistance now. At a certain point, the clothes become so expensive. It’s like an Hermès handbag. Look at how much a Birkin bag costs now. I remember when it cost $3,500.”

For most luxury retailers, the fourth quarter accounts for 30 percent to 35 percent of annual sales, according to retail experts. But not everybody is so heavily dependent on the period.

“Black Friday could be Purple Friday,” said Bud Konheim, ceo of Nicole Miller. “At our end of the business we don’t have doorbusters, we just do our regular business. Our surge comes about a week before Christmas for New Year’s Eve. When it’s an apparel Christmas, you need to have something like a hula hoop or an item like a poncho or a certain handbag. We don’t have one this season. It’s not our time at bat.”

The popularity of knitwear has been a boon for Catherine Malandrino, which is selling berets, pointelle baby alpaca and cashmere cardigans and tunics, according to Bernard Aiden, ceo. “We’ve done well with Malandrino, our designer division, especially cocktail dresses. If it’s designed well and fits well, they’ll buy. If we just had evening dresses or cocktail dresses, I don’t think we would do as well.”

Coach’s exotic handbags and accessories are strong sellers, according to a spokeswoman, who added, “They provide a halo to the brand and are offered in our pinnacle stores, such as 595 Madison Avenue, 625 North Michigan Avenue in Chicago and Rodeo Drive. An example is the limited-edition ostrich satchel for $4,500. They do quite well but are produced in very limited quantities, as you would expect.”

Coach is projecting a sales increase of more than 20 percent for the holidays in its North American stores and more than 25 percent growth in department stores.

“We’re seeing the consumer trading up more than ever,” said Lew Frankfort, chairman and ceo of Coach. “Our limited-edition Mandy Courier [$798] is sold out. You can get it on eBay for a much higher price. We’re rushing additional product by air. A new collection of enamel bracelets [$78 to $148] also seems to have hit the right chord.”

Selling briskly for the holidays at Juicy Couture shops are signature charm bracelets, priced from $55 to $155; cashmere tracksuits, $575; Couture Couture cashmere sweaters, $395; velour travel sets, $125, and fragrance.

With Coach, Juicy and J. Crew, which features long silk tuxedo gowns for $2,000 in its catalogue, slipping into the luxury lexicon, traditional high-end brands may have to redefine the concept. “The brands that have typically been associated with luxury are struggling with how they can reimagine luxury and add incremental value when Wal-Mart is talking about luxury,” said Hurley. “The luxury concept is about a dream, an idea, a lifestyle. I think Coach does a very good job of offering an amazing dream at an amazing price and Tiffany’s [has] done it for a very long time.”

While early indications bode well for the luxury sector, Hurley cautioned, “The most critical time of the holiday season is still ahead of us.”

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