Holiday Consumers Spending Big, Not on Bargains

December 21, 2004

Holiday Consumers Spending Big, Not on Bargains

This holiday season, Vincent Cassanetti, 60, a wealthy retired business owner, is helping to keep luxury sales booming. The Palm Beach, FL, resident has spent $50,000 on gifts for his wife and children, including $600 shoes from Jimmy Choo and Chanel, as well as designer handbags, jewelry and clothing. That is up from about $35,000 a year ago. "This is a really good Christmas," he told the Associated Press.

But that is less the case for Eileen Brosko, 70, a retiree whose stock portfolio dwindled to a quarter of its value a few years ago. "At my age, I am not doing too much buying. I don't feel secure," said the Parsippany, NJ, resident, who was visiting Manhattan on a recent Saturday. She, her husband and their family exchanged names and are limiting the price of gifts to no more than $50 each. For her grandchildren, she bought tickets to a show at Radio City Music Hall.

Those contrasting approaches help show why the holiday 2004 season for retailers is turning out to be sharply divided between the haves and have-nots. Luxury stores such as Neiman Marcus, Nordstrom, Saks Fifth Avenue and small designer boutiques are enjoying robust sales of such items as $8,000 mink ponchos, $1,000 snakeskin handbags, $200 crystal-studded jeans and $25,000 bejeweled bangles as their well-heeled shoppers have benefited from a recovering economy.

An influx of foreign tourists taking advantage of the weakened U.S. dollar also has helped boost sales at high-end stores – as has a belief among some consumers, no matter what income, that they need products with status labels, even if it is a box of $30 French chocolates from Bergdorf Goodman. "There is this quest of who is going to have the shiniest, boldest and brightest status symbols," said Gerald Celente, director of Trends Research Institute, in Rhinebeck, NY.

Contrast that with the results of discounters such as Wal-Mart Stores Inc. and mid-level stores such as Sears, Roebuck & Co. and May Department Stores Co. Inc., all of which have been struggling with tepid sales. Many are fighting hard with early-bird specials on Saturdays, free gift cards, and special coupons.

This holiday season is "a real struggle for a broad range of retailers, other than the high end, and that struggle has a lot to do with the economy," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Chief among the problems has been this year's surge in energy costs. While today's average pump prices of $1.84 is down nearly 20 cents a gallon from October, gasoline still costs 26% more now than it did a year ago. And the cost to heat homes this year could end up being 15-35% higher than last winter, depending on the weather and the type of fuel used, according to the Energy Department. Many shoppers also are faced with escalating health-care costs and worries about jobs.

The spending gap was again apparent in retailers' November sales. Among luxury retailers, Neiman Marcus Group Inc., which owns Bergdorf Goodman, had an 8.4% increase in sales at stores opened at least a year. Sales at such stores are considered the best measure of a retailer's health. But Wal-Mart, which also got hurt by not aggressively discounting at the start of the holiday season, reported a meager 0.7% same-store sales gain. The weakness at Wal-Mart continued at least through the week ended Dec. 11.

The retailing industry needs middle-income shoppers to buy more, because they represent the bulk of total spending.

Bergdorf Goodman has sold out of such items as bangles adorned with semiprecious gems from Verdura, priced from $16,500 to $25,000; $535 Manolo Blahnik leopard printed sandals; and $1,700 brocade jackets. Saks Fifth Avenue's best-sellers include $1,095 Dolce & Gabbana snakeskin handbags exclusively made for the merchant, and $200 Seven jeans adorned with crystals.

And New York-based fur and ready-to-wear designer Sherry Cassin, who sells to Saks Fifth Avenue and other upscale merchants, said she could not keep up with surging demand for her mink ponchos, priced between $2,250 to $8,500.

Even high-end toys are selling well. American Girl, a unit of Mattel Inc., has sold out of such doll accessories as $70 miniature beds and $48 spa sets. And while FAO Schwarz's average selling price is $20, it is doing well with a number of big-ticket items such as collector dolls and life-size plush animals, both of which sell for several thousand dollars.

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