Why The Luxury Industry Is Under Pressure As Low-End Businesses Thrive

Would-be high rollers are keeping a tighter grip on their wallets these days.

For many, cheaper fuel and more job availability (lower unemployment rate) translate into higher levels of discretionary spending.

But the factors that signal economic strength for some have markedly different implications for others — particularly luxury-goods clientele.

As discount and off-price retailers The TJX Companies Inc., Ross Stores Inc., DSW Inc. and others appear to thrive, the luxury sector — impacted by record-low oil prices, FX volatility and other market pressures — is taking quite the hit.

Research firm Cowen and Co. hosted its second annual Retail & Luxury Day in New York last week, and the team of analysts said the discrepancy between spending by low-end consumers and high-end shoppers will continue to show up for some time.

The conference gave us incremental confidence that retailers with exposure to low-end consumers are currently in a healthier position versus those with high-end exposure,” Cowen and Co. analyst Oliver Chen said. “Our fireside chats with Ralph Lauren, Sotheby’s and Hudson’s Bay Co. indicated that high-end consumers remain cautious given: financial market volatility concerns, global political and economic uncertainty, and the stronger U.S. dollar.”

Chen added that he believes financial market stability and FX pressure will likely be “key swing factors to 2H16” luxury sales results.

Attendees included the CEO and CFOs from Ascena Retail Group Inc., Hudson’s Bay Co., JCPenney Co. Inc., Ralph Lauren, Sotheby’s, Sequential Brands Group, Very Bradley Inc. and private companies Chromat, Peloton and Rebecca Minkoff.

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