Image: Mc Cormick
Katherine McCormick tries on an $18,000 lippy cat fur coat with fox trim at the Royal Chie fur store in New York. Amid signs of a recovering economy, luxury retailers are downplaying basic merchandise in favor of pricey impulse buys.
By
CNBC
updated 12/8/2003 7:26:12 PM ET 2003-12-09T00:26:12

As the holiday shopping season gets into full swing, discount chains are seeing strong traffic. But so are luxury retailers. Though everyone loves a bargain, there are apparently many shoppers who believe that only the best will do.

It is a bifurcated market in the retail sector: The low end is strong, as retailers like Target have mastered the combination of low prices and high style. But the business is also good these days at stores like Tiffany’s that are synonymous with luxury.

Analysts say things are looking up in the luxury retail sector because something they are calling the “feel-good” factor.

“I think now there is kind of a renewed optimism in the luxury-goods arena,” said Kristine Bentz, an analyst with Northeast Securities. “I think people are finally starting to take a deep breath and enjoy themselves, and they want to purchase something that is comforting to them. And that happens to be luxury goods.”

Dana Telsey, a retail industry analyst at Bear Stearns, says executives at luxury-goods retailers are using much more encouraging tones about future sales and profits. Product categories that are doing especially include leather goods and jewelry. Same-store comparisons are likely to be good with the last half of last year, when the SARS epidemic and war in Iraq had an impact on the sector. This year, the stock market is looking up and things looking better.

Analysts are expecting 5 to 7 percent growth in the retail sector overall. Luxury goods are expected to do slightly better than that, because many of the luxury retailers have positioned themselves well and have the merchandise that customers want — even those on a limited budget.

“Customers are planning their purchases very specifically,” said Gail Zauder at Elixir Advisors. “So somebody will want to ... purchase a handbag that may cost $1,000 ... and defer purchases on something else.”

Movado, the New Jersey-based watch maker, reported Tuesday reported that earnings were up 14 percent in the third quarter versus last year, and new products are driving comparable sales up more than 19 percent at the company’s boutiques.

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