Luxury booms while bargain retail suffers

30 Aug 2010

By Greg Farrell in New York and James Politi in Washington; Published on Financial Times.

Personal spending in the US is diverging into two distinct categories as strong growth at high-end stores contrasts with continuing difficulties for mass-market, low-price retailers.

Nearly a year after the US economy returned to growth, corporate earnings reports in recent months have provided consistent evidence of the differing fortunes. At high-end stores such as Neiman Marcus and Tiffany, shoppers are demonstrating confidence and spending with vigour. At the other end of the retail spectrum, consumers are cautious amid economic uncertainties, denting the earnings of groups such as Walmart.

In the second quarter of 2010, personal consumption expenditure – the commerce department’s main measure of consumer spending – advanced at an annualised rate of 2 per cent in the US, matching the fourth quarter 2009 figure and improving upon the 1.9 per cent gain recorded in the first quarter of this year.

“Retail tends to be the leading edge of an economic recovery and this hasn’t been the case [this time round],” said Jack Kleinhenz, chief economist at the National Retail Federation. “People are finding ways to economise.”

This has hit mass-market retailers, which had initially managed to offset the impact of the recession on revenues through discounting.

The higher-end companies, which suffered more going into the recession, are now recovering more quickly coming out.

On Friday, Tiffany, the luxury jewellery retailer, reported a 9 per cent increase in sales for the second quarter of 2010 over the comparable period a year ago.

By contrast, Zale’s, a mass- market chain of jewellery stores, has seen its 2010 sales lag behind its comparable figures for 2009.