Shoppers: Moneyed vs. Worried

Affluent buyers feeling flush push luxury retailer Neiman Marcus to stellar results, while discount-store shoppers hold back

By Amy Tsao

Retail sales were generally lackluster in August. Some outfits blamed Hurricane Charlie. Others pointed the finger at gas prices or the late start to the back-to-school shopping season. Giants Wal-Mart (WMT ), Costco (COST ), and Target (TGT ) all reported sales well shy of analysts' forecasts. According to estimates pulled together by First Call/Thomson Financial, sales at retail stores open at least one year (same-store sales) rose an average 1.4%, weaker than the expected gains of 2.3%.

One of the few standouts among retailers was Neiman Marcus Group (NMGa , NMGb ). Its same-store sales in August rose an astounding 14.7%, far surpassing the industry average. What's more amazing is that the August strength came on top of an already robust 7.6% same-store sales increase in the same month in 2003. Dallas-based Neiman's stock price has climbed 26%, to $54.80, over the last 12 months.


  This exception to the retailing doldrums demonstrates Neiman's strong execution of its super-high-end strategy. But its performance also reflects a broader economic phenomenon: Wealthy Americans seem unshaken by current economic uncertainties and are still spending their money freely, while consumers in lower income brackets are feeling less secure.

Neiman is without a doubt superior at customer service and stocking the right merchandise for its finicky, luxury shopper, says Katherine Galligan, analyst at equity research and trading firm Aperion Group in Dallas. For example, this year when the luxury department store held its annual summer clearance sale in July, very little merchandise was left to discount because much of its inventory had been sold at full price earlier in the season, notes the analyst.

That the very rich are feeling so good has been particularly beneficial to Neiman, which is considered the "pure play" among luxury department stores, Galligan says. While competitors Nordstrom (JWN ) and Saks (SKS ) carry a mix of expensive and midlevel brands, Neiman only stocks the most elite of designer names like Prada and Carolina Herrera. Clearly, it pays to be at the top of the top end: Compared to Neiman's August same-store sales gain of 14.7%, Nordstrom posted a 7.2% growth and Saks, a 1.7% increase.


  Neiman has also benefitted from the larger trend of America's affluent continuing to feel flush, in contrast to those of modest means. One reason: Customers of high-end retailers typically own their houses, and since home prices keep climbing, "they feel very confident," says Eric Jemetz, senior equity analyst at asset-management firm Rockefeller & Co. The glow may have helped luxury retailers Nordstrom and Saks, too -- their results, while no match for Neiman's, are still better than the industry average.

Wealthy shoppers' largesse has been felt as well in August auto sales, which tell a similar story to the retail data. While vehicle sales were weak broadly, the highest-end models performed nicely. Ford (F ) and General Motors (GM ) reported sharp declines in monthly vehicle sales of 13% and 14%, respectively, but sales at luxury automaker BMW zipped ahead 9.4%. Sales at Porsche accelerated by 12.6%.

By contrast, rising fuel prices, worries about job security, and limited wage growth are big issues for most other households. "Most people feel less certain about the future," say Jemetz, so they've become more careful on how they spend money.


  That largely explains the tepid sales growth at a mass merchant like Wal-Mart. "It makes sense that discount stores are weak," Aperion Group's Galligan says, "because a lot of their customers deal in cash and lately have less cash because they're spending more at the pump." This year, too, consumers don't have the benefit of the tax-rebate checks they had last year.

Still, the economy is on the rebound, and more robust job growth is expected to kick in before yearend. That should lend a big hand to retailers of all kinds. But for now, spending by the superrich will likely remain strong while everyone else's buying is a little more tenuous.

Tsao is a reporter for BusinessWeek Online in New York

Edited by Tzyh Ng

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