The Luxury Market Is Dead

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Includes: BID, COH, JWN, M, NMG, PERY, RL, ROIC, SKS, TIF
by: Hedge Fund Live

Make no mistake about it. The luxury goods market is dead. At least that’s the way I see it for now in the current economic times. High end retailers are increasingly catering to value conscious consumers with the most recent example being Neiman Marcus (Pending:NMG) launching their Last Call Studio outlet stores in November (including a location in our very own neighboring town of Paramus, NJ). CNNMoney.com has a Luxury section and their featured articles are from early February 2010. Can anyone say lack of activity in the luxury market? It’s either that or CNNMoney is doing a terrible job updating this portion of their site.

Apparently, stock investors do not agree with me on this point as names like Coach (NYSE:COH) and Sotheby's (NYSE:BID) have rallied hard in the recent months. Don’t get me wrong - consumer spending has certainly picked up as evidenced in same store sales figures. However, I still am not convinced of a solid growth in comp sales as the past couple of months have not necessarily painted a clear picture of an uptrend for me. And going back to my main argument, I don’t foresee the luxury market going back to what it was like in pre-recession years anytime soon. If sales are to improve for these upscale retailers, I’d attribute the growth to increased focus on price conscious shoppers through outlet stores, for example.

This strategy has gone from a top line boosting advantage to a necessity for these companies. CapEx at Saks Fifth Avenue (NYSE:SKS) has been going into remodelling their lower end version, Off 5th. Nordstrom's (NYSE:JWN) discount stores, Nordstrom Rack, have seen 15 new openings this year alone, including one over the summer in designer-obsessed Manhattan. Nordstrom and Neiman Marcus have even turned to the internet to launch websites for their outlet stores this month, a move that is largely avoided in the retail space given the challenge of selling the limited stock of items that are all already on clearance.

With the trend in high end consumer retail moving towards outlet stores and any other methods of pushing discounts, the luxury market will not look like what it used to back in the heyday for many more years. Until then, looks like a life of luxury can only be dreamed of outside of reality like in this $2 million dollar gold version of the board game Monopoly.

Disclosure: No positions