Luxury May Be Tested in 2008

As 2008 begins, evidence is building that the luxury market is losing its luster.

Neiman Marcus Group Inc. characterized the environment as "somewhat challenging" and is offering an extra 25 percent off already reduced designer merchandise through Friday. Coach, the highflying leather goods firm, anticipates its smallest fourth-quarter gain in six years and uncharacteristically lowered prices on some handbags just before Christmas. Sales at Nordstrom have stumbled as fewer shoppers reached for the stores' expanded assortment of designer brands. And even Starbucks' "affordable luxury" allure has cooled as measured by the first-ever drop in visitors to the coffee chain's U.S. stores.

While the triple threat of declining housing values, tighter credit terms and rising energy prices have weighed most heavily on the average consumer, taken together the events have created "ennui" among luxury shoppers that is starting to put a damper on their spending, according to Unity Marketing, a firm that tracks luxury consumers.

After years of robust growth, the shift is expected to put luxury retailers to the test in the year ahead, particularly retailers that have relied on so-called aspirational shoppers, or consumers who "stretch" into designer territory when they are flush with cash.


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