‘Get-It-Cheap Party’ for Luxury Goods Ends at Saks

Stephen Sadove, chief executive officer of Saks, Inc
A file photo shpws Stephen Sadove, then chief executive officer of Saks, Inc. Source: Saks Inc. via Bloomberg

Lisa Hagen bought a $395 Diane von Furstenberg sundress at Barneys New York last week, paying 58 percent more than she did for a similar dress two years ago.

“A lot of the high-end designers are at remarkably high prices,” said Hagen, 51, a marketing consultant in New York. Still, she said, “I am willing to pay higher prices and full prices if I like it, it fits my need and I know I will use it.”

Luxury chains including Barney’s and Saks Inc. are selling costlier goods after scaling back discounts and promotions they offered to attract shoppers in the recession. Tiffany & Co. raised prices across the store. U.S. sales of luxury goods may rise 4 percent in 2010 after falling to $60 billion last year from a 2007 record of $72 billion, according to Bain & Co.

“The get-it-cheap party for luxury consumers has ended,” said Milton Pedraza, chief executive officer of the New York- based research firm Luxury Institute. “When consumers now turn over the product and look at the price, they see that those days of incredible discounts on luxury goods are over.”

The higher prices are helping retailers improve their profitability after posting losses during the recession. Saks forecast an improvement this year in gross margin -- the fraction of revenue left after subtracting the cost of goods sold. Dallas-based luxury chain Neiman Marcus Group Inc. said margins improved by 7 percentage points in its most recent quarter because markdowns were so much less.

Saks rose 7 cents to $9.39 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has climbed 43 percent this year. Tiffany dropped 82 cents, or 1.6 percent, to $49.38, for a gain of 15 percent in 2010.

More Costly

Saks had been the “poster child” for discounting, Chairman and CEO Stephen Sadove said in an April 15 Bloomberg panel discussion. The chain has since reduced inventory and is offering fewer discounts to sell more merchandise at full price, he said.

“You’re getting back to the basics of what the category was all about,” Sadove said.

The average ticket price for U.S. luxury goods excluding jewelry jumped 11 percent in March from a year earlier, after year-over-year gains of 10 percent and 6.4 percent in February and January, respectively, according to MasterCard Advisors’ SpendingPulse data. The March gain was the biggest in the past two years. The steepest drop was a 13 percent decline in December 2008.

Annual Bonuses

SpendingPulse, based in Purchase, New York, measures retail sales across all payment forms, including cash and checks. For its luxury measures, the firm isolates the top 10 percent of ticket prices in the high end of clothing and leather goods.

Luxury consumers have returned to the stores after stock markets rebounded, housing prices stabilized and Wall Street firms paid their annual bonuses. Sales of luxury goods soared 23 percent in March from a year ago, SpendingPulse said.

In the last months of 2008, luxury retailers discounted goods by as much as 70 percent to clear inventories that became bloated after consumer spending nosedived in the aftermath of the Lehman Brothers Holdings Inc. bankruptcy and the global financial crises.

Prices may continue to climb this year as fall merchandise flows into U.S. stores this summer.

“We are hearing that for fall sets, stores are looking to bring some higher-priced goods,” said Sapna Shah, principal of Retail Eye Partners, a New York-based retail research firm.

No Slam-Dunk

The average price of a luxury handbag sold at U.S. department stores is rising to $1,800 this year after falling to $1,600 last year from a pre-recession $2,000, Hana Ben-Shabat, a retail expert at the A.T. Kearney management consulting firm in New York, forecast in an April 15 telephone interview.

“They will do the slight increase if they can get away with it,” Pedraza said. “It’s not a slam-dunk.”

At Barneys, shoppers in December 2008 could buy Tod’s men’s chocolate brown penny loafers for $269, down from $390. On April 16, the Barneys Web site offered similar loafer styles at $395 to $495.

Dawn Brown, a Barney’s spokeswoman, declined to comment on pricing. The chain is privately held.

Tiffany’s Web site on April 16 offered a Metro mini diamond cross necklace at $675, up 23 percent from the in-store price on Feb. 24. A Paloma Picasso green Zellige aventurine ring was at $525, an 11 percent increase.

Chanel, Charvet

Tiffany, the world’s second-largest luxury-jewelry retailer, raised its prices at the end of February for the first time in a couple of years to reflect higher product prices, said spokesman Mark Aaron. The average increase was more modest than the two examples above, Aaron said, without providing specifics. The New York-based chain doesn’t discount its products.

Calls to Bergdorf Goodman stores revealed that a Jumbo Classic quilted Chanel handbag in black “caviar” texture with a leather gold chain is $2,995, up 20 percent from three years ago, and that men’s Charvet shirts start at $450. They were $425.

Salvatore Ferragamo ties cost $160 on the Bergdorf Goodman Web site. Three years ago they were $135. Men’s black Gucci loafers with silver horsebit buckles were priced at $475 to $595, compared with $450.

“Prices fluctuate based on exchange rates, materials and design features,” Ginger Reeder, a spokeswoman for Neiman Marcus, said in an April 18 e-mail.

Saks’s recent sales gains have been driven partly by an increase in the average price per unit sold, said Julia Bentley, a spokeswoman. A larger number of transactions also was a factor, she said. Comparable sales jumped 13 percent in March.

‘Desire Is Improving’

Neiman Marcus has also noted a recovery in sales at the highest prices.

“Desire is improving,” Neiman Marcus Chief Financial Officer Jim Skinner said March 26 at an investor conference. “Some of the hottest things we’re selling are at the very upper, upper end of our price range.”

Saks’s “substantial” rebound in full-price selling is helping its profitability, CEO Sadove said.

Gross margin jumped to 36.5 percent in the quarter that ended Jan. 30 from 21.2 percent a year earlier. The New York- based department-store chain said it expects that to widen to as much as 38 percent this year from 36.6 percent last year.

“There’s no question that an increase in full-price selling has a positive effect,” Sadove said.

Hagen, whose clients include Paris Residence Club, a collection of fractional ownership properties in the French capital, said she’s happy to pay for Domenico Vacca silk three-button shirts, which have cost $790 for the past five years, according to spokeswoman Laura Laudiero.

“I buy those shirts no matter what the price,” Hagen said. “Investment dressing!”

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