- The Washington Times - Monday, December 22, 2008

Double-digit price slashing, shopping spree raffles and other giveaways aren’t limited to discount stores as upscale retailers are doing what they can to entice shoppers in what’s shaping up to be the worst holiday season in years.

Online shoppers at high-end department stores Neiman Marcus and Saks Fifth Avenue are urged to enter their e-mail addresses for a chance to win a $3,000 shopping spree. Saks is selling designer items for up to 70 percent off and touting no payments and no interest for a year on purchases of jewelry and watches. Meanwhile, Bloomingdales.com is plugging its “best gifts under $100” and offering free shipping on orders over that amount.

While the luxury sector is traditionally more insulated during a consumer spending freeze thanks to its more affluent customer base, that is not the case with the current economic recession.

“High-end retail is horrendous,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm.

Luxury sales fell nearly 5 percent year-over-year in September, 20 percent in October and more than 24 percent in November, according to a SpendingPulse survey by MasterCard Advisors.

Across the board, the National Retail Federation has predicted the slowest growth in holiday sales in six years, at 2.2 percent. This season, luxury retailers are joining big-box stores like Wal-Mart and Target by offering deep discounts as a way to minimize losses and unload inventory.

For example, a Marc Jacobs draped back dress, originally priced at $2,100, is now going for $629.95 on SaksFifthAvenue.com. At Neimans, a Salvatore Ferragamo Mosaic Tote bag has been marked down from $2,374 to $2,050.

Analysts say the impact on the luxury sector is a function of just how bad the current downturn is.

“There’s no more Lehman Brothers, there’s no more Bear Stearns, Merrill Lynch has got half the people it used to have, Citigroup is firing people,” Mr. Davidowitz said. “Financial services is in a depression and they are the biggest consumers of luxury goods.”

The financial crisis has especially frozen spending among so-called “aspirational” buyers who rely on credit for their splurges.

“The aspirational customers are finished. They’re completely under water because they were over their heads, like most Americans, to start with,” he said.

Michael McNamara, vice president of SpendingPulse, noted that the luxury category, like electronics and appliances, relies on large purchases above $1,000. Both categories have suffered double-digit declines so far this holiday season, compared with last year’s performance. According to SpendingPulse, sales of electronics and appliances have dropped 25 percent to date this season while the luxury sector has experienced a nearly 28 percent plunge to date.

But it’s not just those who live beyond their means who are curbing their indulgences - affluent shoppers have seen their portfolios dwindle and likewise are reining in spending.

At a summit for retail executives in New York in October, Saks Inc. Chief Executive Officer Stephen Sadove described the downturn’s “psychological” effect on wealthy consumers.

“It’s how do they feel like shopping and how do they feel about how their portfolio is doing,” he said. “In some cases, if they were buying two of the handbags, maybe they’re buying one of the handbags right now.”

The sector’s recent financial performance reflects the lagging sales. Saks last month posted a third-quarter net loss of $42.8 million, compared with a net profit of $21.6 million a year ago. On a conference call, Mr. Sadove told investors that the company is considering cost-cutting measures like closing stores.

Results were similarly bleak for upscale chain Neiman Marcus, whose profit fell 84 percent to $12.9 million. Likewise, luxury jeweler Tiffany & Co. reported a 57 percent drop to $43.8 million.

“It is impossible to know when consumer confidence will be restored,” Michael Kowalski, Tiffany chairman and chief executive officer, said last month.

One consolation, albeit perhaps a small one: Mr. McNamara pointed out that luxury sales usually depend on the last 10 days before Christmas for a large percentage of sales.

Louis Ball, assistant manager at Liljenquist & Beckstead at Fair Oaks Mall in Fairfax, predicted an uptick in business with the end of the elections as new members of Congress and government appointees move into the area.

“The Washington area is more recession-proof than Ohio or the Midwest,” he said. “People with money are going to spend it.”

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