Luxury Retailers Face a Challenge, But Already Have a Fight Plan

Luxury retailers might be in for a dry spell in the coming months.

Luxury retailers might be in for a dry spell in the coming months.

The good thing is that upscale merchants say they have learned some lessons since the last recession today know how to adapt quickly.

Year-to-date luxury retailers have been performing well, with luxury department stores posting same-store sales growth of 8.5 percent, ahead of 7.4 percent growth for all retail chains tracked by ICSC. Retail leasing activity on upscale urban streets like Madison Avenue in New York City has also been up this year, with more chains signing deals, according to Joshua Strauss, vice president with Robert K. Futterman & Associates, a New York City-based retail brokerage and consulting firm.

In September, rents on Fifth Avenue, currently the most expensive retail street in the world, jumped 21.6 percent year-over-year, to $2,250 per square foot, according to a report from global brokerage firm Cushman & Wakefield. Rents on Madison Avenue went up 1.9 percent to $847 per square foot. On North Michigan Avenue in Chicago rents rose 12.5 percent, to $450 per square foot.

“Retail moves a lot slower than the stock market,” says Strauss. “We haven’t seen any effect from the recent downturn.”

Yet there are indications that things might be about to change. At the end of July, the Luxury Consumption Index (LCI), tracked by Unity Marketing, a Stevens, Pa.-based market research firm, fell 16.8 points to 66.0 points, registering the biggest drop since the beginning of the recession in late 2007/early 2008. Affluent consumers see the disturbing signs in the direction of the economy and the financial markets and plan to be spending less on discretionary goods, according to Pam Danziger, company president.

“Our surveys tend to be a little ahead of what’s going on with luxury companies and what we saw in the middle of the year was a sharp and steep decline in the confidence level of luxury consumers,” Danziger says. “These people are expressing a whole lot of concern about what’s going on and they are not going to risk their lifestyle to buy another bag or pair of shoes. That’s the kind of wave we see forming right now for the coming Christmas season.”

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