A survey finds upscale brands primed for expansion.
NEW YORK — Luxury labels will continue to expand across America, capitalizing on the nation’s appetite for quality brands and products, as well as the upheaval in malls, as department stores consolidate and space opens up.
In a survey commissioned by the Lumenati division of The Macerich Co., completed by 40 luxury firms in October, it’s apparent that the Tiffanys and Burberrys of the world still see plenty of untapped territory in the U.S. in which to expand.
According to the survey, luxury companies, on average, are planning 21 store openings in 2006. The East Coast is expected to get the most new doors — an average of 6.6 per company. The West will follow with an average of 5.6 new doors per company, with the Midwest slated for 4.5 new doors for each firm.
Three-fourths of the companies surveyed have no plans for international expansion, but those that do cited “robust” plans for stores abroad.
In the East, it’s no surprise that luxury firms are targeting Florida, New Jersey, New York and Massachusetts the most, while in the West, it’s almost all about California, Arizona, Colorado and Nevada. Texas, Oklahoma, Tennessee and Missouri are most often mentioned in the Midwest area, and the Pacific Rim is mentioned most often in the international category.
It’s also apparent that luxury stores view retail consolidation, particularly in the department store sector, as further opportunity for growth. On the other hand, they worry about the stock market, terrorism, the economy and consumer confidence holding up, and to a lesser degree rising fuel costs. These are all issues that could slow their pace.
For many of the brands in the survey, “Retail consolidation is the overwhelming issue,” said Jim Haynes, president of Behavior Research Center in Phoenix, which conducted the poll for Lumenati, the year-old division of the Santa Monica, Calif.-based Macerich. Lumenati includes nine high-end centers in California and Arizona, and when the division was launched, represented about 15 percent of Macerich’s gross leasable area.
The luxury brands in the survey included Apple, Burberry, Ferragamo, L’Occitane, Estée Lauder, Elizabeth Arden Red Door Salons, Wolford, Sur La Table and Tiffany.
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These brands believe retail consolidation presents opportunities for shopping centers “to break away from some of the old practices,” Haynes observed.
“The other thing is how universally optimistic they are about the holiday season expectations into next year and potentially even beyond that. Not a single respondent projected any sort of decrease, and the lowest increase mentioned was 2 percent,” Haynes said. “Luxury firms have a good sense of the factors that influence their business positively or negatively. As the survey indicates, this is a very focused industry segment.
“The people at Macerich and other developers have to deliver to attract these [brands],” he added. “If they want a Tiffany in their next center, they better have the demographic data that backs up Tiffany’s notion of who their customer is.
“I think brands also have a sense that if they become too enamored with expansion they can dilute their [name] very quickly,” Haynes said. “While there is a level of confidence, they’re not interested in expansion just for the sake of expansion. They see themselves as almost a destination.”
“Our Lumenati research shows that luxury retailers agree the biggest industry news of this year is consolidation — specifically the Federated-May merger,” said Tracey Gotsis, senior vice president of marketing for Lumenati. “For luxury retailers, this means change and opportunity, just as it does for luxury shopping centers. When you open up this much territory, a lot of great things can happen. In a year of somewhat unsettled consumer confidence, it’s interesting that luxury retail executives share a buoyant outlook for this year’s holiday retail season. In fact, they project a healthy sales increase of nearly 15 percent.”
Federated Department Stores Inc.’s takeover of May Department Stores Co. was clearly on the mind of luxury retailers with 49 percent listing it as the top retail story of 2005.
The single biggest potential risk for robust holiday sales is a downturn in consumer confidence, according to 31 percent of the respondents, whereas 23 percent cited the threat of terrorism. Twenty percent cited a downturn in the financial markets and 18 percent cited rising oil prices.
Only 5 percent cited a potential burst in the residential real estate market and just 3 percent are worried about an economic downturn.
But the luxury chains are bullish about business, projecting a 14.9 percent sales gain in 2005, and a 14.6 percent gain in the year’s fourth quarter. Thirty percent of the respondents project 11 to 20 percent gains for the year, and 23 percent expect 11 to 20 percent gains for the fourth quarter.
According to the survey, none of the respondents checked off the statement: “There will be a cultural shift away from luxury consumption.”
Further indicative of the inherent strength of the luxury consumer segment, 54 percent of respondents say the single biggest boon for holiday sales this year will be continued strong consumer confidence.
“Another 15 percent indicate that the continued focus of popular culture on the purchase of personal and experiential luxuries will provide a boost for holiday sales … One-fourth believe an upturn in the financial markets will prove most significant.”
Only 3 percent said an expeditious conclusion to the war in Iraq would spur sales.
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