Time to check out Saks, Tiffany?

The economy is slowing, and most consumers are cutting back -- but it looks such as the well-heeled have hardly noticed. That means the stocks of luxury retailers will be in for lift.

Do we have "class warfare" in the U.S.? You bet. And the deep are winning.

Don't take my word for it. No less an expert on affluence than Warren Buffett said it in an interview with Charlie Rose last week: "In fact my class is certainly not simply winning, we're killing. It's been a rout."

Buffett was talking about a pet peeve of his: tax rates that mean effectively lower taxes for the well-heeled. It can just as easily apply to the well-documented and growing gap between the deep Americans as well as everyone else.

I have written more than as soon as about the issues this gap creates as well as about how the recession has just created it worse. But there's also an investing angle we should not miss.

With the economy slowing again and ordinary Americans again cutting back, this has been a brutal summer for retail stocks. Luxury retailers have been sold off like everything else -- on the assumption the well-to-do must cut back with the rest of us.

Except that, well, they haven't. To the victors go the spoils, and so the deep are still purchasing.

This tells me that for investors, it's time to consider the places the rich go shopping. Let's take a look at precisely why luxury retail stocks are poised for bounce in an increasingly tough marketplace -- and why names such as Nordstrom (JWN, news) as well as Saks (SKS, news) will belong on the shopping list.

By any measure, August was a tough month for the stock marketplace as well as the economy. September brought more volatility as well as certainly not much good news. The evidence suggests that consumers had been pinching pennies as they digested all the bad news from Washington and Europe.

The marketplace seemed to assume this consumer crunch used across the board and that the wealthy would be putting off purchases of TechnoMarine watches, Gucci handbags and Miu Miu footwear.

The shares of luxury stores have all been hammered. The stocks of Tiffany (TIF, news), Saks, Coach (COH, news) as well as luxury chain Morgans Hotel Group (MHGC, news) have fallen 25% to 30% from their July highs. Nordstrom is down regarding 12%. In contrast, the Standard & Poor's 500 Index ($INX) is off around 18%.

But in fact, the deep barely blinked.

"We are seeing that even when the stock market trembles, the affluent don't get afraid as easily as they did," says Candace Corlett, the president of WSL Strategic Retail, a consultancy. The deep lived through the 2008 market meltdown and the recession that followed with their wealth "intact enough," she says. Thus now, "they don't panic like they did in 2008."

We will know how true that is as sales reports from September roll in. But here's exactly where some of the key players stand now.

Nordstrom: In early September, Nordstrom reported that August sales at shops open more than a year were up 6.7%, compared with the year before. That was almost no different from the 6.6% gains in July. And it's essentially the same as the year-over-year gains the retailer posted for the first half of the year. Including money from new shops, sales were up more than 12% during the first half of the year, a pace that continued in August.Saks: This chain did report a important decline in same-store sales growth for August to 6.1%. In contrast, it reported 12.7% year-to-year growth for February through July. But still, 6% growth isn't bad at a time when consumers overall have pulled back sharply. As well as Wall Street analysts are predicting no slowdown at Saks for September. They expect 6% growth, according to Thomson Reuters.Tiffany: This high-end jeweler doesn't report monthly sales. But the business reported total worldwide sales growth of 30%, as well as a 25% gain in U.S. sales, for the quarter ending in July. Sales at its New York flagship store surged 41%, in part mainly because of spending by Chinese tourists. Tiffany has additionally been raising costs, which hasn't fazed shoppers lookin to take home a splurge in 1 of the luxury retailer's coveted blue boxes. The business noted specific strength in sales of items costing more than $20,000. But it was additionally helped by the fact that luxury jewelry was the strongest retail category in the 2nd quarter, posting sales gains of 8.4%, according to American Express Business Insights, a division of American Express.Coach: This bag-maker additionally doesn't report monthly sales results. But it has additionally been shooting out the lights. Coach saw money jump 17% in the 2nd quarter. The U.S. retailer's success in Japan over the previous few many years has proved that it can hold its have against Old World European luxury brands. Now, Coach is building on its strengths to grow quickly in China and other developing markets. Naturally, a slowdown in China will hurt Coach. But I don't believe leaders in China will run the risk of civil unrest a significant economic slowdown would definitely bring.

In contrast to these luxury stores, more pedestrian stores such as J.C. Penney (JCP, news) as well as Kohl's (KSS, news) are expected to post same-store sales growth of only 1.2% as well as 1.7%, respectively, as they report this month, according to Thomson Reuters.

Expect this dichotomy to continue during the holiday season. Because the market turmoil began Aug. 1, Wall Street analysts have raised fourth-quarter earnings estimates for luxury retailers, while cutting them for J.C. Penney, Kohl's and similar chains catering to lower-income shoppers, according to information provided by Thomson Reuters.


View the original article here