Bets on the top-performing retailer this holiday don’t favor the storied haute couture companies – not Chanel with its $4,500 handbags, nor Neiman Marcus and its $150,000 bespoke falconry set.
Instead, it’s Michael Kors Holdings – an American sportswear brand from a sassy former “Project Runway” judge – that’s roundly predicted to crush Christmas.
The company is what’s known as a bridge brand, operating on the low end of luxury. Its handbags generally cost less than $500. But the sector’s mix of just-high-enough prices and accessible-yet-glamorous design makes brands such as Kors, Kate Spade and Tory Burch like catnip for consumers who are sick of curbing their spending but still wary of an uncertain economy.
“American consumers have been sitting on their hands for many years,” said Bob Shullman, founder of the luxury-focused Shullman Research Center. “They’re frustrated, and they want to treat themselves. But they’re also trying to survive, so they have to find something to splurge on that’s not going to break the bank.”
Kors boasts of trying to “appeal to a younger demographic.” The social-media-savvy brand gained nearly 34,000 new followers in the 18 hours after launching the first-ever Instagram ad last month.
Kors’ stock is up 64 percent so far this year and almost 250 percent since its debut nearly two years ago. During the quarter ended Sept. 28, revenue soared 38.9 percent and earnings per share rocketed up 44.9 percent.
Morgan Stanley analysts expect the company “to deliver the single best sales growth in retail this holiday.”
Other upscale brands are taking the hint, targeting young shoppers and venturing into e-commerce and more affordable product lines.
Luxury not hurting
It’s not that top-line luxury is suffering. Euromonitor expects luxury spending to rise more than 35 percent globally in the next five years.
Another consulting firm, Bain & Co., says the gauge will reach roughly $300 billion this year, up from $293 billion last year. The U.S. is by far the largest luxury market by revenue, drawing more than $86 billion, followed by Japan and Italy. MasterCard Advisors said that the luxury sector, sans jewelry, enjoyed the biggest revenue spurt last month and was the only category to see a double-digit sales increase year over year.
But it’s Kors and other relatively affordable luxury brands that are booming in popularity. The Kate Spade label posted a 76 percent increase in net sales in the three months ended Sept. 28.
“The market for these brands doesn’t seem subject to the recession – their business is consistently getting better and better,” said Ron Friedman, leader of the retail practice at consulting firm Marcum.
Take Coach, a bridge luxury brand where a wallet can be purchased for less than $200.
The American Affluence Research Center found in a fall study that a third of wealthy respondents had owned Coach products, by far the most out of a group of brands that included Louis Vuitton, Hermes, Gucci, Chanel, Prada and Burberry. A quarter of respondents said they believed that Coach was overrated, less than any of the other brands.
A move toward ‘lust-worthy items’
High-end retail brands are taking note.
“Whether they like it or not, in order to grow, they need to get some support from mass-market consumers,” Shullman said. “They’re experimenting now with how to do it without tarnishing their brands.”
Upscale brands such as Louis Vuitton and Versace will increasingly move into jewelry, cosmetics and fragrance, according to Euromonitor researchers. The strategy will enable them to offer smaller but still lust-worthy items to compete with more affordable brands.
Burberry launched its first line of color cosmetics in 2010. Gucci is rumored to be debuting its own makeup collection next year.
Italian label Fendi recently introduced a playful line of accessories called Buggies – fuzzy, facelike charms that hang from a purse. They each cost $700, which might seem cheap compared with a Fendi purse priced 10 times higher.