NEW YORK — The old adage location, location, location carries an addendum for high-priced department stores: It’s got to be a location near people with money.

So it’s no wonder that, over the past decade — through the biggest luxury boom in U.S. history — retailers such as Neiman Marcus, Saks Fifth Avenue and Nordstrom Inc. have chased down prime locations in the richest zip codes. You might think that all the good spots are taken, that there’s no room to grow a luxury retail brand. Well, think again.

An analysis by WWD of the locations of the top three luxury department store retailers and recent median income data show there is room for these companies to grow. But to pull it off, they have to think out of the box. Way out of the box.

Some are beginning to. Over the past year, analysts and real estate brokers have been talking up the idea of getting the big luxury chains to make a significant push to open smaller-footprint stores. In August, real estate sources said Neiman’s was negotiating space for a new, smaller format (say, 10,000 square feet) in the Tysons Corner Center in McLean, Va., as well as the Westfield Century City mall in Los Angeles. There was also talk of a Georgetown location in Washington. In September, Nordstrom picked up a majority stake in designer retailer Jeffrey. The company said it was looking to open additional Jeffrey stores.

According to the analysis of the market, the bulk of Neiman’s, Nordstrom and SFA stores are concentrated in the richest, most populous states, namely California, Florida and Texas. These retailers also have a strong presence in Illinois, Washington (all Nordstrom, where it is based), New Jersey, New York, Oregon, Virginia and Arizona. All these states have average median incomes well above the national average of $44,000 a year.

Collectively, sales by these three retailers in the 10 states just mentioned total about $8 billion, according to WWD estimates, which represents about 60 percent of their total combined sales.

Noteworthy is California, which has 64 stores among the three high-end retailers. The reason for the large number may be answered by the state’s $58,327 median annual income as well as its pricey real estate. Of the 50 most expensive zip codes, ranked by Forbes, 30 are in California.

This story first appeared in the October 24, 2005 issue of WWD. Subscribe Today.

The remaining sales are spread out across the U.S.; by these three retailers have the fewest stores in North Carolina, the District of Columbia, Massachusetts, New Mexico and Kansas. They have no stores — as one might expect, since there is no large, wealthy population — in Arkansas, Iowa, Kentucky and Montana.  Delaware, birthplace of tax-free apparel, does not have one of these stores, even though the state’s average median income is more than $60,000 a year.

States where these retailers have very little presence — even though the areas, according to Census Bureau data, have some of the country’s highest median incomes — are Nebraska ($52,472), New Hampshire ($67,848) and Rhode Island ($58,978). Rhode Island does have a Nordstrom. On a county level, Census data shows there are numerous pockets where median income is between $62,000 and $98,000 (see adjoining map). These are in Colorado, Minnesota, Michigan, Maryland, Ohio, Connecticut and Massachusetts.

So, to serve states that have high median income, but few high-income households, the luxury department stores could be effective opening boutique-like, smaller versions of their department store concepts — as long as customers who  can afford luxe prices are nearby.

“I would say that there is opportunity for retail innovation in the luxe market,” said consultant Emanuel Weintraub of Emanuel Weintraub Associates Inc. “There’s an awful lot of money in…the nonleadership cities.”

Such A-list retail market cities as San Francisco, New York, Miami and Dallas are known to have populations with high disposable incomes, but there are other cities, Nashville, say, or Aspen, Colo., that also have staggering amounts of wealth, Weintraub noted.

Yet neither SFA, Neiman Marcus nor Nordstrom has any stores in Tennessee,  and in Colordao, Saks has just one store in Colorado, Neiman’s has two and Nordstrom has four.

“As astute as the luxe retailers are, they perhaps need to reconsider their homework because we have an absolutely homogenized taste level,” Weintraub said, adding that female shoppers in Texas would not balk at paying $1,000 for handmade cowboy boots and they still need to buy dressy, mainstream apparel and accessories, the same as the typical shopper on a boutique-filled area such as Madison Avenue in New York.

In addition, he noted that every major regional metro area in the U.S. sells the same types of luxury automobiles.

“My view is that they really need do their analytics again,” Weintraub said. “If you talk about the true high-end boutiques selling eyeglasses or custom jewelry, or selling unique clothing and shoes, I’m thinking that when you add it all up nationwide, it’s huge. People with money want an outlet for spending that money.”

There are also tourism dollars that might be grabbed with smaller luxe boutiques in locations such as Aspen or a leaf-peeping state such as New Hampshire. But the cost-to-return ratio of a large-store format would not work in these areas.

“Retailers have a size of scale, and you’re not going to put an upscale Nordstrom in Casperº, Wyoming,” Weintraub said. “The question is, where do you put [luxury department stores] that you’re going to draw them? It’s not something that lends itself to an easy conclusion.”

It’s clear, though, that there’s a reason luxury retailers aren’t in Maine or Vermont.

“Without enough concentration of prospective customers that are of a certain demographic, you’re not getting foot traffic and you’re not getting buying traffic. And, without a certain inventory turnover, you’re not going to be profitable,” explained Craig Johnson, president of retail consultant Customer Growth Partners.

Retailers tend to be very scientific about where they choose to open stores, said Johnson. They typically complete market studies that show that stores are most successful when they’re opened in a city that has at least a specific number of people within a certain radius as well as a population that is able to afford a certain level of spending. The retailers then cross-reference the demographic and population information with sales from their direct-to-consumer business to ensure that a specific city is a good choice, Johnson said.

The consolidating retail market puts the luxury department store sector in a good place. About 75 stores will be up for grabs as Federated Department Stores completes its merger with May Department Stores.

Combined, SFA, Nordstrom and Neiman’s currently operate less than 300 stores domestically, and Nordstrom makes up more than half of that amount.

Indeed, Nordstrom is at least one luxury department store player that stands to benefit from empty anchor stores. Nordstrom is “better positioned to pick and choose prime locations,” Jennifer Black of Jennifer Black & Associates wrote in a recent research note to clients. “We also think the company is positioned in a sweet spot, with some luxury offerings, helping the retailer to maintain its cachet, and well above the lower tier, whose customers are being negatively impacted by escalating fuel costs.”

Nordstrom is also in a good place because it’s competitive among younger markets, Black said.

“Channel checks consistently reveal strong traffic trends and consumers seem to be more and more inclined to name Nordstrom as one of their top destinations for apparel and related items,” Black wrote. “We believe the teen customers, in particular, are more regularly shopping Nordstrom and that the company is stealing market share from other teen destinations.”

WHERE THE LUXURY RETAILERS ARE
State: Saks Fifth Avenue Nordstrom
Neiman’s
Total By State
California
9
49
6
64
Florida
11
9
9
29
Texas
6
11
12
29
Illinois
3
10
3
16
Washington
0
14
0
14
New Jersey
2
5
3
10
New York
3
5
2
10
Oregon
2
8
0
10
Virginia
2
7
1
10
Arizona
1
6
2
9
Georgia
1
5
2
8
Colorado
1
4
2
7
Maryland
1
6
0
7
Michigan
1
4
2
7
Pennsylvania
2
2
2
6
Nevada
1
2
2
5
Ohio
3
2
0
5
Utah
0
4
0
4
Connecticut
2
1
0
3
Hawaii
0
2
1
3
Minnesota
0
2
1
3
Missouri
1
1
1
3
North Carolina
1
2
0
3
District of Columbia
1
0
1
2
Indiana
1
1
0
2
Massachusetts
1
0
1
2
New Mexico
0
0
2
2
Alabama
1
0
0
1
Alaska
0
1
0
1
Kansas
0
1
0
1
Oklahoma
1
0
0
1
Rhode Island
0
1
0
1
South Carolina
1
0
0
1
Arkansas
0
0
0
0
Delaware
0
0
0
0
Idaho
0
0
0
0
Iowa
0
0
0
0
Kentucky
0
0
0
0
Louisiana
0
0
0
0
Maine
0
0
0
0
Mississippi
0
0
0
0
Montana
0
0
0
0
Nebraska
0
0
0
0
New Hampshire
0
0
0
0
North Dakota
0
0
0
0
South Dakota
0
0
0
0
Tennessee
0
0
0
0
Vermont
0
0
0
0
West Virginia
0
0
0
0
Wisconsin
0
0
0
0
Wyoming
0
0
0
0
Source: Company Web sites as of Oct. 1, 2005. Nordstrom includes Nordstrom Rack, Spa Nordstrom and Façonnable Boutique. Neiman’s includes the Bergdorf Goodman stores.
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