E-commerce sales and luxury sales are both experiencing strong year over year growth

MasterCard released their SpendingPulse macroeconomic report for July 2011, and the findings are a mixed bag for retailers. Luxury good sales are up 11.6% year over year, and e-commerce sales grew for the 24th straight month in every category except electronics. Combine that with the fact that many luxury brands have finally stopped fearing e-commerce, and it’s blue skies and sunshine for luxury good makers. Saks, who had to shutter some stores not so long ago, reports that same-store (stores open at least one year) revenue is up 15.6%, handily beating estimates of an 8.5% increase.

Then there’s Wal-Mart, whose same store traffic is down 2.6% year over year. Though they’ve attempted to up their style credibility, shoppers aren’t buying it and competitors like Target and traditional supermarkets are seeing foot traffic increase.

So what gives? Is the economy that far back on track that everyone’s trading up? Not exactly.

Surveys from Morgan Stanley and WSL Strategic retail found that shoppers actually don’t think Wal-Mart has the lowest prices anymore. Add to that, many are shopping less because they have less money to spend in the first place. {Bloomberg}

On the other side of the spending coin, luxury brands have been bumping up their prices on everything from 4-figure face creams to designer shoes and consumers are opening their wallets. Not at pre-recession levels, mind you, but enough to push sales up significantly for everyone from BMW and Mercedes Benz to Tiffany’s, LVMH and PPR (owner of Gucci and Yves Saint Laurent, whose luxury division recorded 23% sales growth). {NY Times}

Which makes it seem like the US retail sector is becoming a tale of two shoppers. In some ways, we hope that is the case, but aren’t sure that it is.

The recession happened for many reasons, but a significant one was consumers living beyond their means, spending money that they didn’t really have.  While we’d like to believe that all of the luxury sales are dormant affluent consumers reawakening their credit cards after gaining from the overall gains the stock market has made since it hit is recent lows, the reality is that “aspirational shoppers” have long sustained the mass luxury industry.

If those shoppers have been saving and are financially stable, we don’t see a problem with spending $1000 on one item rather than 10 or 20 less expensive items.

While there may be some careful saving and selection behind the jump in luxury sales though, another percentage stood out to us: 33. That’s how much MasterCard’s profit rose year over year. There are undoubtedly some affluent individuals driving the $608 billion in MasterCard/MaestroCard spending, but we’d be remiss to overlook the fact that we’re still largely talking about the spending of borrowed money.

We’re glad to see sales in any industry bounce back, but we’ll wait for more information on who’s leading the shopping recovery before getting too hopeful that it’s truly a sign of the economy getting back on the ball.

The New South China Mall has been almost completely empty for most of its 6 year existence. Many luxury flagship stores report a similar lack of foot traffic.

Many Western companies are excited about China’s rapidly growing middle class, and the consumer opportunity they present, but for luxury brands (not including luxury automobile makers) the most profitable path to capturing Chinese consumer spending power has been to market to the mainland, and sell abroad.

Why? For mainland China, import duties typically make the same goods 50-70% more expensive than they would be in cities outside of China. In France alone, a survey by Global Refund estimated that Chinese shoppers were responsible for nearly $1 billion in purchases. {Reuters} Perhaps in response to those type of statistics, China is preparing to reduce or eliminate the high import duties that drive consumers outside of mainland China for shopping.

Luxury Society covered some of the ins and outs of Chinese retail strategy for luxury brands. Essentially, flagship stores in mainland China are little more than street advertising to entice consumers to shop abroad, and on occasion private showrooms for a few high net worth shoppers who can keep the stores profitable with one or two spending sprees each year. The sales? Those are happening in places like Hong Kong, Singapore, Paris, London and New York.

In spite of the high taxes, and the fact that a good amount of Chinese luxury shopping is done outside of China, the country recently overtook Japan as the world’s second largest luxury market. Restrictions on luxury advertising in Beijing demonstrate the opposing views of communist capitalism, but China’s goal to increase domestic consumption and reduce their dependence on exports seems to be gaining ground over state sanctioned ideals.

After all, even though the current economic boom can create jobs building malls and flagship stores,  if doesn’t matter if none of that money makes its way back into the store.

Old money is giving way to young luxury. Images from Burberry's Art of the Trench

A study by American Express Business Insights found a few interesting patterns emerging from data on Amex cardholder spending.

• Pre-recession, the wealthiest 10% of luxury consumers accounted for 68% of luxury spending
• Post recession, they accounted for just 38%
• Aspirational shoppers (those who aren’t considered wealthy, but trade up for luxury goods) represented 70% of pre-recession luxury consumers and accounted for 12% of luxury spending
• Post recession, they accounted for 13%
• A new group called “Newcomers” falls into the bottom 90% of spenders, but are an increasing portion of the consumers who are spending on luxury items
• Most Newcomers are women, and while a third are part of the older Baby Boom generation, a third fall into the Generation X category and 10% are in the Generation Y category

In other words, the very wealthy aren’t the ones leading the rebound in luxury spending. The question then turns to why? After all, unemployment is still stubbornly high, particularly for younger and middle class Americans.

It’s important to keep in mind that when things got bad for luxury retailers they got really bad. Bad enough that even luxury merchandise was being marked down by as much as 70%. While luxury spending is rebounding, it’s coming off of some pretty deep lows.

As far as total dollars spent, the current luxury category is likely still smaller than it was pre-recession. Just to attach a random number, if consumers spent $10 billion on luxury items in 2007, $4 billion in 2008, $4.5 billion in 2009 and $5 billion in 2010, spending is up but still has a way to go before wiping out recession period losses. Which means that even if the percentage of younger, less affluent luxury shoppers is increasing, the total dollar amount they’re spending is probably still lower than what the very wealthy were contributing. Since so much of the pre-recessionary spending was based on bubbles and debt, that may not be a bad thing.

During that period websites like Gilt, who offered discounts on luxury items, saw massive growth selling luxury items at 50, 60 or even 70% off. E-commerce and online spending weren’t hit as deeply as brick and mortar stores during the recession and both have had pretty amazing growth over the past holiday season – up to $1 billion per day during certain pre-Christmas shopping days.

It’s not impossible that these sites are introducing new customers to luxury brands at a more affordable price point, and some of those customers continue to buy from the brands after the initial discount. Or, that they’re learning to wait for the next sale and do their luxury shopping at a discount.

Finally, continuing in the online vein there’s the rise of social media. A significant number of fashion and luxury brands finally stopped ignoring the internet in 2010. Not just that, but a few actually moved past tolerance to full fledged involvement. It wasn’t universal, but a number of brands were interacting with fans on Twitter and Facebook, creating their own networks and content, engaging bloggers and communities.

Who are the people spending the most time and money online? We’d bet they have a profile very similar to the luxury Newcomers. They may not have the dollar for dollar spending power of the wealthiest 10%, but at a time when shopper for shopper the rich prefer Macy’s to Neiman Marcus, Newcomers are likely to remain luxury’s best hope for growth.

Diamonds? Shoes? We'll take both.

UK based designer shoe retailer Kurt Geiger has seen a rise in operating profits by more than 21%, which accumulates to $18.3 billion dollars, in his 63 worldwide stores. {the Guardian} Considering the economic climate it seems like nothing will get between women and their love for shoes.

Kurt Geiger alone sells over 2 million shoes annually with the average price ranging between $285 and $365 per pair. Sales of designer shoes also reached record highs at Harrods and Selfridges, where Jimmy Choo, Prada and Gucci are some of the major brands that are flying off the shelves. Jewelers struggled majorly during the recession, but companies like Tiffany & Co. have shown signs of growth recently. Diamond.net reports that Tiffany’s Laurelton subsidiary recently agreed to a 25% price increase for fancy diamonds, which will probably make it’s way to shoppers this holiday season. Gem Diamonds, a company that operates diamond mines, cutting and polishing facilities reported increased third quarter sales driven by demand in Asia. For consumers worldwide, that will probably be reflected in the price of fine jewelry,  although you can still get amazing deals using vouchers such as Kays discount codes.

It has also been predicted that global luxury sales will grow 10% this year to $237 billion, but it is expected growth will cool next year to 4%-5% due to the weakening dollar. Consumer sales of jewelery in the U.S. market were strong during July of this year. Both specialty jewelers along with retail merchants who sell jewelry posted solid sales gains, in line with newly released data on the U.S. Department of Commerce. {IDEX Online}

Total U.S. jewelery sales rose by 8.2 percent to $4.1 billion in July 2010 above the same month not too long ago. Dependent on prior years†July results, jewelery sales have recovered towards same level as July 2007 and July 2008, both record months for jewelery sales.

Specialty jewelers†sales rose by 7.3 percent to $2.1 billion in July 2010, when compared with their sales in July 2009. The luxury sector is rebounding better than expected this year thanks in large part to wealthy Americans replenishing their wardrobes after a year of self-denial and nouveau riche Chinese indulging in a worldwide spending spree, according to a new study by consultancy Bain & Company. {Business Wire} Unfortunately, specialty jewelers†sales will still be running below record pre-recession levels.

Even though shoe sales are on the increase, jewelry sales are outweighing shoes by a huge margin and it looks like diamonds (and gold, and silver, and pearls…) have cemented themselves as a womanâ€s number 1 love. The modern preliminary government figures show the U.S. jewelery market is on target to come up with $63.3 billion in sales. This will represent a 2.1 percent gain above the prior record of $62 billion generated in 2008.  In comparison, US women’s footwear sales (including athletic shoes) accounted for a little over $23 billion in sales in 2008. Not too shabby when you consider that the figure represents almost 50% of the $48 billion in total U.S. footwear sales, but still some way to go before overtaking jewelry as the accessory of choice.

One saying is true; diamonds are forever, but buyers are becoming more and more fickle and shoes are on the heels of jewelry for their love.

We’ve seen $1400 collectible toys for adults. If you thought the $3,000 price tag on T-shirts that popped up in Valentinoâ€s Rodeo Drive, Los Angeles boutique this summer was ridiculous, get this: following strong second quarter sales, Hermès now offers a childrenâ€s coloring book going for $130. {The Cut}

Thatâ€s $130 for something a toddler is likely to draw all over in disarray. If a parent handed this pricey art toy to their youngster, the pages would likely be torn out and hung on a refrigerator before inevitably fading and being tossed out. Not to mention that in this economy many shoppers are unwilling to pay that much for clothes, much less temporary entertainment for their kids.

Parents can also score a $600 pull-along wooden horse from Hermès for their little ones. A wooden horse is at least a bigger item with more longevity, but similar ones are available for much lower prices at Toys ‘R Us. In fact, a better-looking, pink and green horse can be purchased for $26.99 at toysrus.com.

Hermès†collection of pricey kid toys does not stop there, though. The luxury brand also offers a $390 plush horse, a $405 silver-plated music box and a $435 sterling silver rattle. The rattle and music box are nice decorative pieces, but is anyone really going to give their newborn a sterling silver rattle to play with? The weirdest part of all is that children inevitably grow out of their baby toys, so itâ€s not as if the price tags can be justified with the potential for lifetime use.

Is there something weâ€re missing here? Let us know in the comments if thereâ€s ever a convincing reason to spend so much money on childrens toys!

Last week, the luxury fragrance house sent five perfumed taxi cabs out into central London to serve patrons the same way any other London black taxi would with a few exceptions. Each cab smells like either the brandâ€s Artemisia, Blenheim Bouquet, Endymion, Malabah or Orange Blossom perfume, and each oneâ€s driver is specially trained to discuss Penhaligonâ€s fragrances and answer any questions about the brand. Passengers will receive a 10 percent voucher for purchases at penhaligons.com and in Penhaligonâ€s boutiques at the conclusion of their ride. {InStyle UK}

Londoners will easily be able to spot the cabs†outer Penhaligonâ€s branding, and the cost of each trip will run the same as any regular black cab ride. {London Beauty Review} Anyone who spies a Penhaligonâ€s cab but doesnâ€t take a trip in it can still participate in the promotion by snapping a picture of the car and posting it to their Facebook page with Penhaligonâ€s tagged for a chance to win a 100ml fragrance of choice. {Fashion Foie Gras}

Penhaligonâ€s is not the first company to embrace the taxi as a marketing tool. Last month, Revlon offered Londoners who photographed the turquoise taxi they sent around the city and tagged Revlon in the picture on Facebook a chance to try the brandâ€s latest mascara before it hit shelves. {London Beauty Review} In addition, Fashion Foie Gras says tons of major retail outlets have used the taxi cab in one promotional form or another.

We wonder just who it was that was sitting at their cubicle one day and thought “taxis! That’s how to sell products.” In this economy, we suppose itâ€s smart to get creative with promotions, and the incorporation of Facebook is a good move. We wonder, though, what may be the result if a passenger who is allergic to perfumes steps into one of Penhaligonâ€s cabs unknowingly. Comment and let us know if you think cab marketing is a good idea!

For now, the hottest new personalized product trend is creating your own chocolate. Chocomize, a New York-based Web company, offers custom-made candy bars, designed by the consumer and shipped right to their door. You get a choice of up to five out of 90 ingredients to add to your choice of chocolate bark for over 30 million combinations to create “chocolate exactly the way you want it.” You can also design your own packaging and engrave personalized messages into the chocolate.

Ingredients include nuts, fruit, seeds, herbs, spices and decorations in addition to some peculiar choices, with some of the most outrageous including Pop Rocks, vegetarian bacon, Edamame, corn nuts and Beef Jerky. {DesignCrave}

Chocolate bars start at $3.85. Thatâ€s pricey for a piece of candy, but perhaps worth it for the custom-obsessed or socially conscious, as a portion of the proceeds for each candy bar sold go to a charity of the customerâ€s choice. Chocolate with a personalized message is also a cute party or wedding favor idea.

Chocomize is not alone in the customized chocolate-verse. Createmychocolate.com (Chocri) offers a similar service with over 100 toppings and a charity donation upon checkout. Chocri was founded in Germany and launched in the United States this past January.

The coolest thing about Chocomize, however, is its back story. Eric Heinbockel, Fabian Kaempfer and Nick LaCava, three young entrepreneurs who met at Columbia University, founded the company after realizing the economic downturn meant poor job prospects for all of them upon graduation. They decided to create their own career path and chose to start a customized candy bar business after their own research showed chocolate to be one luxury good still in demand despite the recession.{CrunchGear}

Talk about inspiring!

From left to right, the Chocomize Smores Bar, Tighty Whiteys chocolate bar, and Fresh Face Forward chocolate bar

The Chanel 2.55, now .2x more expensive?

Hermès posted second quarter sales results that were up 20% (must be the magic number), noting increased demand in Asia and the US, where a weaker Euro may have worked in the company’s favor. Groupe Laurent Perrier, a champagne maker, had a sales increase of 17% compared to the previous year, and Swiss watchmakers outpaced both for a 35% increase in exports compared to the previous year. {WSJ} Chanel recently opened a Korean store that set a one-day sales record of nearly $375,000. {JoongAng Daily}

Still, is now the best time to hike prices – particularly at a double digit rate? We’ll have to wait a few more weeks to see if the Chanel rumors pan out, but a recent report from MasterCard Advisors’ SpendingPulse showed a 3.9% decrease in spending compared to last June. With a few notable exceptions, even the good news isn’t entirely good. While sales are up, for many retailers this is an increase over sharp declines last year, so it’s not straight line growth.

What’s more, consumers with household incomes over $150,000 per year – the approximate entry level to be included among the top 20% of US households, account for almost 40% of spending. Luxury sales, which likely rely on $150k+ shoppers for a more significant portion of sales tend to fluctuate with the stock market. {Google News} Lately, the Dow Jones hasn’t been doing so well and may be an early sign of wealthy spenders becoming more conservative with their purchases in coming months.

The good news? Well, for the luxury retailers finally coming around to e-commerce, it may be better late than never. Online sales were up 9.7% overall. Apparel was the best performing category with growth of 18.6%, marking the seventh month of double digit gains. {Internet Retailer}

We know that Chanel has plans to finally offer a wider range of products to online shoppers – expanding on their existing beauty e-commerce area, and giving real competition to web savvy counterfeiters for the first time. Yet somehow we’re not sure if that will be enough if luxury shoppers start questioning why the same bag that was 20% less 2 weeks ago is suddenly more expensive. The Euro hit significant lows against the dollar this year, after laying off hundreds of workers at the height of the crisis we know they’re operating with a leaner workforce, and many brands cut production to respond to lowered demand. While Chanel is certainly one of the brands that can rely on its heritage to lend its products “investment” status, we’ll have to see if shoppers accept a price hike tied more to image than actual costs – or if they decide to invest elsewhere.

the Forzieri China website

While this might be bad news for Alipay, the ever-intensifying fight for market share is great news for Chinese consumers, who now have an increasing number of options for online shopping. As a Peopleâ€s Daily article this week points out, as online payment companies continue to duke it out and offer more incentives, Chinese shoppers can now avoid dealing with currency exchange and do more direct online shopping from individual global luxury brands or shopping portals.

From the article (translation by Jing Daily team):

Nowadays, consumers can skip the complex process of currency exchange, and purchase luxury goods from Gucci, Prada, Armani and other international brands directly through their websites.

Recently, after the Italian luxury brand Forzieri announced its cooperation with Paypal and launched a direct payment feature, the well-known fashion retail site Raffaello Network decided to test the waters of the Chinese online shopping market. As the No. 1 Italian fashion e-commerce website, Raffaelo Network sells Gucci, Prada, Fendi, Armani, Versace, Todâ€s and many other international brands. Consumers can not only choose from among 40 designers and 15,000 items according to their taste, but also enjoy an average 40% discount below retail prices.

It has been reported that during the transaction process, Paypalâ€s “overseas purchase” service helps domestic [Chinese] consumers exchange yuan into foreign currencies immediately, which is then paid to the seller for overseas shopping, which increases the convenience of direct transactions. At present, the “overseas purchase” feature supports currencies like the British pound, U.S. dollar, Swiss franc, euro etc. — 12 foreign currencies in all.

In response, industry insiders have claimed that the convenience of overseas payment has greatly stimulated the desire of Chinese consumers to shop online, which could lead to more overseas online shopping sites entering the Chinese market.

Global Luxury Brands “Testing The Waters” In Chinaâ€s E-Commerce Market originally appeared on Jing Daily, and is republished on Signature9 with permission.

The PR CEO start of Bravo TVâ€s “Kell on Earth” spoke to a small group of editorial interns, fashion-obsessed youngsters and public relations entrepreneurs at the Bryant Park Reading Room Series Wednesday, and she had a quite frank earful on the future of fashion, replying to a girl asking about where to look for a career in the field by saying:

“Style is in; fashion luxury, forget it. It’s over. Gucci, Vuitton, Hermes … all those places are really great, go for it. That business exists in a city called Paris, France. That’s where that is. Those businesses will continue. Retail business, pretty much over. I think people who sell to retail companies are people who can’t afford their own stores … Old Navy, J.Crew, Gap … they already knew that and aren’t wholesaling. Editorial, magazine, we are going to say buh-bye to them as we know them. They will still exist but everything is on the internet.” {The Cut, Racked NY}

On the one hand, tell us how you really feel, Kell. On the other, Bravo Kelly! She may be over dramatizing a tad in regards to luxury and retail being “pretty much over,” but it is about time someone spoke up about the hard realities facing fashion, especially in the editorial department. Times are changing, and if the dominant players in the industry want to continue to grow their businesses, they need to learn to adapt.

Persistent efforts on the part of luxury retailers to understand the youth market is a great start, but New York Magazine says the fashion industryâ€s biggest mistake is its strange fear and avoidance of the Internet, specifically social networks and blogs, citing the long series on the “future of fashion” Style.com runs in which they ask important fashion businesspeople like Barneys’ Julie Gilhart about the Internet.

We agree. Even when the big brands try, they don’t always get it right. Considering that the Internet has been a major force to be reckoned with for years now in many industries, fashion magazines and businesses still have a lot of catching up to do. Until revenue from web advertising catches up to revenue from print advertising though (they’re still miles apart), we suspect the wait won’t end soon.