Retailers grasping for right mix

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Luxury is over.

That's the straightforward assessment Walter Loeb, publisher of the Loeb Retail Letter, has of the retail segment catering to the nation's wealthiest consumers.

Mr. Loeb says he cannot point to one upmarket retailer doing well with its luxury business in the current economy and world situation.

For example, Saks Inc. is doing well, but only because of the performance of its department store chains including Bergner's, Boston Store, Carson Pirie Scott, Herberger's, McRae's, Proffitt's and Younkers. Its only chain having a difficult time: Saks Fifth Avenue stores.

Theories accounting for the luxury retailers' woes vary widely. Mr. Loeb attributes their malaise to the dearth of executive bonuses for potential luxury shoppers as their employers struggle to contain costs.

Another is the mood of the time.

"More patriotic moments in time [tend to correspond with] less need for external luxuries," says George Fertitta, president-CEO and co-founder of MDC Communications Corp.'s Margeotes/Fertitta & Partners, New York, whose clients include Campbell Soup Co.'s Godiva chocolates. "There is concern about the well-being of our fighting men. Do we really want to think about another Gucci bag?"

`more aware of value'

At the same time, even luxury retailers' customers are being seen in stores where they may never would have been found shopping before.

Tom Holliday, president of the National Retail Federation's Retail Advertising & Marketing Association, says he has a friend who drives a Ferrari to Costco and delights at saving money on tennis shoes. "People are more aware of value," Mr. Holliday says, "even if they own a yacht."

Complicating retailers' woes are the marketing tactics they used over the holiday season to boost sales, with many slashing prices to try to pique shoppers' interest.

Neiman Marcus Co., for example, attached yellow notes to newspapers in certain neighborhoods urging customers to come in for 60% discounts. A few weeks later, another yellow note upped the ante to 75% off.

For its efforts, Neiman Marcus was rewarded with a 39% skid in net income for its fiscal second quarter, ended Jan. 26, vs. the same period a year ago.

"Everyone got spoiled," says Heather Mee, managing partner-strategic planning at New York ad shop Ziccardi Partners Frierson Mee, whose luxury clients include clothier Ellen Tracy. "People aren't abandoning luxury. Either they are buying on discount or [buying] less" luxury merchandise.

Ms. Mee believes luxury retailers' problems began in the boom times of the late 1990s, when they tried to expand their customer base by trying to attract "aspirational" buyers who didn't have the financial wherewithal to purchase a lot of luxury goods.

"They expanded the fold and went away from their core message to their core customer," she says, with some stores going after customers who only buy on big discounts.

Now, retailers are beginning to switch strategies, Ms. Mee notes. "Well-being is the new status symbol," she says. Messages also have taken on a different tone. "The fantasies [portrayed in luxury retail ads] are really toned down this year," she says.

A little fantasy, however, may be just what marketing chiefs at the nation's luxury retailers need. Kurt Barnard, president of Barnard's Retail Trend Report, believes luxury retailers' problems won't be solved in the foreseeable future.

And, he notes, many of the marketing chiefs working at those luxury chains are "bald because they have torn out their hair while they are trying to find a solution."

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