Happy Holidays Not in Store for Affordable Luxury

I know it's not even Thanksgiving yet, but the holidays, as usual, have already arrived. Starbucks has switched out its white and green cups in favor of red ones, and Wal-Mart is already advertising its hottest holiday toys. But the fourth quarter isn't looking so jolly for retailers, according to October sales results released late last week. In fact, 70 percent of retailers said they missed their sales expectations for October, according to Reuters, and many aren't predicting good results for December.

But it's not just the weather that retailers are blaming: consumer spending is starting to slow, thanks to continued concerns about the housing sector, increased gasoline prices and concerns about employment (and maybe not-so-nice Christmas bonuses).

Unsurprisingly, retailers that cater to the mass and mid-tier markets fared worst: Wal-Mart reported sluggish same-store sales growth of .4%, and JCPenney's CEO complained he expected to see the retail environment continue to be difficult in the future.

Those who did best were, of course, luxury retailers, like Saks Fifth Avenue and Neiman Marcus, which posted strong single-to-double digit comparable-store sales growth. I didn't find these results surprising because, again, those who are least likely to stop spending money during times of economic doubt and a potential recession are the extremely wealthy.

But a recent Wall Street Journal article pointed out something quite interesting: so-called "affordable luxury" retailers are starting to feel the burn, too:

Though the luxury sector is expected to put in another strong performance this season, the lower end of that market -- selling so-called affordable luxury to aspirational buyers -- is starting to feel the pinch of the weak economy.... Only the most elite brands and the retailers catering to the richest customers are likely to escape unscathed.

The article says that Polo Ralph Lauren recently cut its profit forecast, and that Coach said it expects its holiday sales in North America to be the slowest they have been in six years. To make matters worse, Coach's stock price is also down 30%.

This is quite a change from how the market has been until just recently:

The outlook is very different from the past several years, when sales of all sorts of luxury goods exploded, boosted by a rising stock market and strong fashion trends that spurred purchases. The boom led marketers to broaden their target audience from the super-wealthy to include the growing ranks of upper-middle-class consumers. Annual sales of luxury goods now total $150 billion globally, up from $110 billion five years ago, according to analysts at Telsey Advisory Group.

But not all luxury brands are suffering the same fate, and it largely, of course, depends on who they are catering to, the WSJ reports. Basically, attainable luxury brands like Burberry, Tiffany and Coach are taking the hit for going more "down market" while Hermes, Van Cleef & Arpels and any other purveyors of the ridiculously expensive will are doing just fine-- if not better than every before. I mean, after all, who isn't up for dropping $1500 on a handbag?

It definitely seems unreasonable enough to me.