“Many people are concerned about their jobs, their compensation,” said Milton Pedraza, CEO of The Luxury Institute in New York. Wall Street layoffs and a dwindling bonus pool have curbed discretionary spending, according to Pedraza, and many well-heeled consumers are tightening their purse strings. “Eighty-five percent of people who are worth $5 million or more are self-made. So they have middle-class values. In downturns, they are very conservative,” Pedraza added.
To that end, October same-store sales numbers released last Thursday showed just how conservative the luxe market has become. Many upscale retailers posted double-digit same-store declines. Neiman Marcus Group’s comps for the month plunged 27.6 percent, while Nordstrom’s same-store sales sank 15.7 percent and Saks slipped 16.6 percent.
“We expect retail demand will remain weak for an extended period of time as our affluent customer reacts to the continuing volatility of the financial markets,” CEO Burt Tansky said in a written statement.
Last Thursday, the day the results were released, the Dow closed down 443 points.
As retailers head into holiday, they are also battling tough sales comparisons against last year and a shorter holiday shopping period due to a later Black Friday. Those factors, combined with financial, housing and employment woes, could make this recession more brutal than previous downturns.
“This certainly feels more painful already, and we are several months into this recession,” said Ken Perkins, an analyst at Retail Metrics Inc., a research firm. “What we’re likely to see are further job losses for the next three to six months, and that takes a big toll on consumer confidence,” said Perkins.
An NPD survey of 67,000 U.S. consumers, conducted in October and presented by Susquehanna Financial Group at a recent conference, said 70 percent believe the economy is in a recession, compared with only 55 percent in April.
Pessimism among consumers took its toll on the department store sector last month. Macy’s same-store sales fell 6.3 percent, while Gottschalks’ same-store sales fell 13.4 percent. Bon-Ton Stores decreased by 11.1 percent, and Dillard’s fell 8 percent. Even the value-oriented department stores JCPenney and Kohl’s were down 13 percent and 9 percent, respectively. At TJX Cos., parent of Marshalls and TJ Maxx, same-store sales were down 6 percent, and Ross Stores was down 2 percent. DSW slipped 4.1 percent.
But what worries analysts the most are the double-digit drops in the luxe market, which was considered one of the most resilient segments. “Those are huge drops. [The consumer] has hunkered down,” said Perkins. “This holiday season is going to be about family and friends, rather than how many gifts are under the tree.”
Discounters such as Wal-Mart and Target could fare better. Target’s October comps were down just 4.8 percent, and Wal-Mart was up 2.4 percent. Among footwear retailers, Bakers Footwear Group was up 6.2 percent for the month.