With last quarter’s improved earnings–and a string of positive same-store sales reports–many have declared that the luxury market is once again booming.
While there is no question that business is on fire in developing luxury markets like China, the results in mature markets suggest a business that IS dramatically improved–and on a much more positive trajectory–but recovered? I beg to differ.
Better is not the same as good. Let’s look at a few examples.
Neiman Marcus (full disclosure: my former employer and I still own an equity stake) is the clear leader in full-line luxury retail and today reported a December sales increase of 4.7% In their most recently released quarterly earnings, Neiman’s reported a 7% same-store sales increase and a 33% increase in operating earnings compared to last year.
Today Saks reported a 11.8% increase in December sale-store sales. In their last quarterly report, they showed a year over year sales increase of 4% and a doubling of their operating income.
This is all sounds pretty good until you compare these results to the same period just before the recession started. Compared to the comparable quarter in 2007, Neiman’s sales are 18% below where they were–and this is after opening several new stores and having a rapidly growing e-commerce business. More dramatically their quarterly earnings are still only half of what they were at their 2007 peak.
Same basic story at Saks: their sales are still down some 17% compared to 2007 (though they have closed a few full-line stores) and pre-tax operating earnings are down 30%.
Nordstrom–the best in class “accessible luxury” player–was affected less during the recession and has bounced back more strongly. Their overall sales are pulling ahead of 2007, buoyed by new store openings, a leading omni-channel capability and a more broadly accessible offering. While they have clearly gained market share, their earning are still about a third less than they were three years ago.
I have little doubt that virtually every player catering to the high end will report significantly improved earnings this next reporting period. And I’m delighted to see this positive trend. But very few will have truly recovered.
A complete recovery will require more than just return of the ultra-high net worth customers and a bounce off the bottom. It’s going to take a broader consumer recovery. It’s going to take a better in-store customer experience. It’s going to take building in more tangible value to the merchandise offering. It’s going to take making the brand more accessible, while preserving the core customer. It’s going to take a more compelling omni-channel strategy. Fundamentally, it’s going to mean that all these players become more customer-centric rather than product-centric.
It can happen–it needs to happen–but it won’t fully happen anytime soon.
I had some surgery a couple of years ago and for some time I was hobbling around, feeling a fair amount of pain. I realized–as did those around me–that each day I was feeling a little bit better. And that was good. But while I was still limping, nobody was deluded that I had completely recovered.
When it comes to the luxury recovery, let’s not kids ourselves either.