President Obama might become “visibly angry” when outsized Wall Street bonuses come up, but retailers catering to the well-heeled in New York and other financial centers have a somewhat different reaction — something more like “ka-ching.”
This story first appeared in the January 26, 2010 issue of WWD. Subscribe Today.
Setting aside the propriety of billions of dollars in bonuses to bank executives after the near collapse of the global financial system, the payouts could help luxury retailers. Bonuses can account for 90 percent of a Wall Street titan’s annual take-home pay and should start hitting personal bank accounts in time to boost March sales.
Andrew Mitchell-Namdar, co-owner and vice president of marketing at Mitchells/Richards/Marshs, based in Westport, Conn., said, “The bonuses help in two ways — the actual bonus, but then psychologically it also impacts up or down depending on what the bonus is. We are very linked to Wall Street; we can see the trends in our business.”
Mitchell-Namdar is optimistic that a strong bonus season bodes well for spring and that customers, particularly men who have curtailed spending, will begin to replenish their wardrobes.
Collectively, total compensation at J.P. Morgan Chase & Co., The Goldman Sachs Group Inc. and Bank of America Corp. rose 43.4 percent to $74.65 billion for 2009. Citigroup’s compensation fell 19.7 percent, but still weighed in at $24.99 billion.
Obama — who White House Press Secretary Robert Gibbs said gets “visibly angry” when reading of huge cash bonuses — is pushing for a fee on financial firms that would compensate taxpayers for the Wall Street bailout.
“If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers,” Obama said this month.
Despite the outrage in the White House and beyond, the bonuses are felt far from Wall Street as well.
“New York lives and dies on finance,” said Joseph Foudy, a clinical assistant professor of economics at New York University’s Stern School of Business. About one-fifth of the state’s tax revenues come from the sector, he said.
“I expect watches, high-end men’s suits, fur coats, things like that” to see a bonus boost, he said. “Families are going to reward themselves once the money is in the bank. The partial restoration of many affluent families’ net worth, given the stock market recovery in ’09, will lead to bigger spending at the Bloomingdale’s and Nordstroms of the world.”
Although the country continues to struggle with 10 percent unemployment, there have been signs of strengthening, particularly in the luxury field. Saks Inc.’s comparable-store sales picked up 9.9 percent last month, as Nordstrom Inc. rose 7.4 percent and Neiman Marcus Inc. advanced 4.9 percent.
This year’s bonus season could help accelerate that trend, although perhaps not to the acquisitive extent seen in the years before 2008. Mindful of the public outcry about Wall Street’s riches, some of this year’s bonuses were doled out in stock, rather than cash. This will limit the ability of recipients to spend them immediately and more tightly tie them to the long-term success of their employers.
“Make no mistake — there will be more money spent,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates and former chief executive officer at Saks. “Once they get [their bonuses] there’s going to be less restraint than we’ve had up until now. Will there be frivolous spending? I think not.”
Aronson said New York would probably be the primary beneficiary of the payouts, but noted other areas with a concentration of bank offices and the global luxe circuit would benefit.
“The luxury business will get a kick out of this,” he said. “Certainly it’s going to have an effect on the whole international system.”
But just because the bonuses are big, it doesn’t mean that Wall Street is exactly the same as Easy Street. Hints of tighter lending standards in China, Obama’s push for bank reform and passing fears that Federal Reserve chairman Ben S. Bernanke might not get a second term all complicated life in the markets last week.
The S&P Retail Index, which dropped 3.1 percent last week, rebounded some on Monday, perking up 0.12 points to 395.76. The Dow Jones Industrial Average, which lost 4.1 percent last week, climbed back 23.88 points to 10,196.86.
Among the fashion stocks gaining ground for the day were G-III Apparel Group, ahead 10.1 percent to $19.41; The Talbots Inc., 4.3 percent to $11.05; AnnTaylor Stores Corp., 3.3 percent to $12.22; New York & Company Inc., 2.3 percent to $3.59; Dillard’s Inc., 2.1 percent to $16.90; Abercrombie & Fitch Co., 1.6 percent to $30.45; Guess Inc., 1.5 percent to $40.32; Nike Inc., 1.1 percent to $63.67, and Nordstrom Inc., 0.5 percent to $34.32.
Investors spent the day catching their breath and pouring over a National Association of Realtors report showing a 16.7 percent drop in existing home sales, to a seasonally adjusted annual rate of 5.5 million units last month. Sales were expected to fall due to a tax credit that was set to expire, but the drop-off was worse than economists predicted.
Other developments that could move markets this week include The Conference Board’s report on consumer confidence today, word from the Federal Reserve on interest rates and Obama’s first State of the Union address Wednesday, and an official reading on fourth-quarter U.S. GDP Friday.