As the echoes of the recession linger, consumers' lips may be saying they need the value offered to them by the likes of Wal-Mart (NYSE:WMT) but consumers' dollars are telling a different story.
Whether they can afford to or not, many consumers are reviving their spending on luxury goods, fashion labels and pricy electronics. Investors take note - this holiday shopping season could throw a curve ball that doesn't completely favor value-oriented gift-giving after all.
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Stacking Up the Clues
It was the higher-end goods that were the first to fall out of demand in mid-2008, a problem that was still lingering as of a quarter ago. But, we may be turning the corner, if the data nuggets are painting a collective picture.
Take Black Friday's online sales for starters. Most e-commerce sites saw an increase in traffic and an uptick in revenue. However, jewelry retailers saw a massive 25% increase in the average order size.
Online jeweler Blue Nile (Nasdaq:NILE) just completed its strongest Black Friday weekend ever, with a notable improvement in - and this isn't a typo - sales of items costing more than $20,000. Blue Nile also said business was good because items that cost $500,000 through other retailers would only cost $350,000 through them. The dollar amounts cited confirm the company's spokespeople are out of touch with the common man, but, they still have a point.
Bricks and mortar rival Zales (NYSE:ZLC) saw an improvement of its own last quarter. Though the jeweler still took a loss, it beat the Street's estimate, as did Tiffany & Co. (NYSE:TIF).
Not Just Jewelers
Saks (NYSE:SKS) surprised the market a couple of weeks ago by turning in its first quarterly profit in a year and a half. As well, Nordstrom (NYSE:JWN) recently upped its 2009 earnings forecast.
The most decisive piece of evidence, however, came from Unity Marketing. The market research firm's luxury consumption index showed a 29% increase in luxury spending between Q2 and Q3 of this year. Granted, it was the ultra-affluent (annual household incomes of $250,000 or more) that drove the bulk of the jump, but it's a jump that favors luxury, and even just high-end, retailers all the same.
The point is it's not likely to be a tepid Christmas across the board despite what the early shopping numbers may suggest. Instead, watch for two levels of Christmas cheer: one that favors value, and another favoring a revival of luxury (even if tempered) gift-giving. The middle-ground retailers may be left in the cold.
On that note, here are three great ways to play the revival of luxury and pricy "toy" gifting as we progress into the heart of the shopping season.
Wants Trump Needs
Though it's prudent to suspect all retailers will fare at least slightly better than expected this holiday season, based on the trend described above, some should shine more than others.
For example, consider Best Buy (NYSE:BBY). The recession has not been kind to its sales or earnings. However, though Black Friday weekend shopping was mediocre for the retail industry, sales of electronics like TVs or cameras were up 6%. Given that Best Buy has a strong store presence side by side with its website - the fourth most shopped website on Black Friday - this tech retailer stands to dole out some impressive numbers for the current quarter.
Though some would not call Nordstrom a "pure luxury" name, it's not Wal-Mart either. Either way, it's a well-run company that has remained profitable when many of its peers have not. Management has demonstrated the ability to adapt to the economic environment, and they're adapting to the current rebound in higher-end spending from some consumers while remaining cognizant of the value needs of others.
Claymore/Robb Report Global Luxury ETF (NYSE:ROB) might appear to be a very generic way to tap into luxury retail spending, and it is. But ROB owns a lot of foreign high-end retailers and luxury goods manufacturers like Swatch Group, Porsche, Coach (NYSE:COH) and Christian Dior just to name a few. Many of its holdings aren't available to American investors in any form, not even as pink sheet stocks or ADRs. And many of its constituents cater to the ultra-affluent mentioned above as the biggest reason luxury spending was revived last quarter.
The Bottom Line
While many have prepared themselves for a thrifty holiday season, the affluent are kicking their luxury spending into high gear. Getting in on the luxury players might lead to a nice surprise for investors.
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