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Talk of the bay

Luxury items not just for the wealthy anymore

By MARK ALBRIGHT
Published January 24, 2005

Some analysts have explained the market-leading strength of luxury retailers in 2004 as an example of the winners of Republican economics cashing in.

But there is more going on here. More middle-class consumers are willing to pay premium prices for what they perceive as top-quality goods.

In a culture where even the Neiman Marcus set goes cruising for deals at Target, Costco and Home Depot, marketers have identified 47-million mid market shoppers who live within their budget but have become big buyers of certain types of high-end goods. They are willing to scrimp and save on most things, so they can trade up for goods that help define their identity.

"It's a movement, not a fad," said Michael Silverstein, a Boston Consulting Group analyst and author of Trading Up, the New American Luxury. "We now have a bifurcated market where a lot of people are willing to pay a premium for selected things."

It could be a flashy vacation, top-tier camping equipment or some other indulgence. That's how some dual-income families consider gourmet cooking a hobby worth a $5,000 Viking stove and young singles don't blink at forking over $38 for a bottle of Belvedere, the vodka of the moment.

It also provides an explanation of why gourmet cat food costs 6 cents more a can to make, but fetches 24 cents more a can in stores. Gourmet cat food provides 55 percent of cat food industry profits.

Luxury retailers have warmed up to the trend not by raising prices, but by stocking more trade-up goods. Saks Fifth Avenue, for instance, recently replaced its popular line of private-label men's dress shirts with a larger selection of Ike Behar, a designer line priced $40 higher. Luxury handbag makers and the fashion press persuaded the average customer to buy three new handbags a year, up from two a decade ago.

While leather goods makers call women's rising obsession with handbags the "new shoes," plenty of shoppers did not buy them on a whim.

"We think 25 percent of our sales are to people who save up to buy our products," said Lew Frankfort, chairman and chief executive officer of Coach, the upscale leather goods company.

[Last modified January 21, 2005, 20:00:08]