What Recession? Luxury Brands Are Back

The interesting question is about the psychology of consumer choices; were rich people really poorer for the past two years, or did they just feel poorer, or did they not want to draw attention to themselves so avoided ostentatious behavior in the midst of widespread unhappiness? While we contemplate those questions, luxury brands are apparently having an exemplary year, in some cases back to pre-2007 levels. I guess if you have to ask why...

Barry Silverstein has the details in Brand Channel:

"Predictions in late 2010 were that luxury brands would see a rebound in 2011. Hallelujah, the forecasters were right.

Current estimates indicate that sales of luxury goods are up as much as 12% from last year, according to retail equity research firm Telsey Advisory Group. That could be one reason the French luxury brand conglomerate LVMH just snapped up Bulgari and has its sights set on Hermes.

"People are willing to pay a premium on something that delivers on luxury," said Milton Pedraza, CEO of the Luxury Institute, to CNN Money. "They will buy fewer but more expensive things. There's a lot more value consciousness."

In fact, it's that value consciousness that seems to be having a weird effect on retailers. Consumers are more likely to buy luxury items at the high end as a special treat, but they also seek out designer brand names in value stores. Interestingly, that means mid-range retailers like JC Penney and Macy's may have a harder time making sales.

Ed Jay, SVP of American Express Business Insights, told CNN Money that consumers "are more high and low in the way that they are spending. High-end brands are holding ground among consumers, while spending at value oriented stores has also been pretty stable. It's a tough place for mid-tier right now."

Jay was referring to middle of the road retailers, such as Ann Taylor, Chico's and Gap. Luxury fashion is enjoying robust sales — as much as a 35% increase over last year — while mainstream fashion increased 8 percent, according to data from American Express Business Insights.

High-end retailers like what they're seeing from consumers. Saks, which struggled last February, saw its same store sales increase over 15% this February. For its fiscal year ending January 29, 2011, sales for the company grew close to 6%. It was a strong enough gain for Moody's Investor Service to lift its junk-level rating on the luxury retailer, indicating "a belief the improvement will be sustainable due to a rebound in the luxury goods market," according to the Wall Street Journal.

In-the-know observers of the luxury market see positive signs all around. Jim Taylor, author of the book Selling to the New Elite and a marketing specialist with luxury brand consultant Harrison Group, told USA Today, "Personal embracement of luxury is now back to (pre-recession) 2007 levels. We're seeing that in cars, private jet usage and, finally, in high-end real estate. There's a real change in the way people feel about money. They're making purchases they put off during the recession."

"During the recession, even the wealthy became needs-based shoppers," he added. "But the scope of their needs is expanding. The capacity to spend is back in play."

Projections are even rosy in the ultra-luxury goods category. Ivan Drury, an analyst for the auto website Edmunds.com, told USA Today the market for vehicles priced at $100,000 and up increased 76 percent last year.

If the recession is indeed winding down, retailers may soon breathe a sigh of relief — and luxury brand marketers must already be jumping for joy.