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Luxury Brands Prevail Despite Wobbly Economy

 
By Ken Sweet
FOXBusiness
     

    Despite what some economists have called a “consumer-led recession,” two high-end clothing and apparel companies posted better than expected earnings Wednesday.

    British luxury brand Burberry (BRBY.LN) posted a profit of 206.2 million pounds ($408.2 million), a 14% increase from a year ago. The company also said it plans to open eight to 10 retail stores in the U.S. despite the sour economy.

    The results showed “the robustness of our global luxury business in these challenging times,” said Burberry Chief Executive Angela Ahrendts.

    Meanwhile Ralph Lauren (RL), maker of the iconic polo pony shirts, said its quarterly profit was $103.5 million, or $1 per share, versus $73.2 million, or 68 cents a share, a year ago.

    As clothes makers, both are heavily exposed to the U.S. consumer market and its economic mood. Ralph Lauren does more than 70% of its business in the U.S. with one-third of sales taking place in department stores such as Dillard’s (DLS), Macy’s (M) and Kohl’s (KSS).

    While department store traffic is down, according to several consumer research firms, Ralph Lauren has remained resilient because of its brand diversity. The company produces several brands, so while the middle-to-lower-end brands like "Chaps Ralph Lauren" are hurting, the high end brands like Polo or Purple Label did well.

    “They have done a great job at differentiating between their brands,” said Morgan Keegan retail analyst Brad Stephens during an on-air interview with FOX Business.

    There is some cause for worry within Ralph Lauren, analysts said. The company’s mass exposure in department stores makes them an “affordable luxury” brand, meaning Polo is often the most expensive clothing brand in a store and one easy for consumers to downgrade.

    "The plastic surgeon's wife is still going to buy a pair of shoes once a day," said Phil Rist, a research analyst with BIGResearch."The affordable luxury market is hurting, but the super rich are doing just fine."

    And Burberry fits into one of those "super rich" brands. While Burberry does have some affordable luxury items, the bulk of what the British apparel giant makes, including $900 trench coats or $1,000 handbags, is aimed at affluent customers. 

    “[Burberry's top end brands] have been very strong and well ahead of market expectations,” said London-based Citigroup analyst Thomas Chauvet in a note to investors.

    The company also has a large presence in Asia, Eastern Europe and South America.

    Not all luxury brands have done well in this economy. The Claymore Robb Report Global Luxury Index, an ETF that tracks the luxury sector, is down more than 10% this year alone, compared with the S&P 500 which is down 4.5%. 

    Richmont, the privately-held firm that owns luxury brands like Cartier, Piaget and Montblanc brands, warned that profits may decline because of the U.S. economic slowdown.

     

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