Luxury Institute News

August 17, 2010

Saks results beat on full-price selling

Posted in Luxury Market,Retail
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By Phil Wahba

NEW YORK | Tue Aug 17, 2010 2:51pm EDT

NEW YORK (Reuters) – Saks Inc posted better-than-expected quarterly results on Tuesday, helped by an uptick in luxury spending and selling fewer items at a discount, sending its shares up more than 3 percent.

Saks said sales at stores open at least one year, or same-store sales, rose 4.6 percent, with its flagship department store on Manhattan’s Fifth Avenue performing well.

Across the Saks Fifth Avenue chain, shoppers sought shoes, handbags, women’s designer apparel and men’s tailored clothing, among other categories.

However, Chief Executive Stephen Sadove cautioned that the U.S. economy is fragile and that the company would continue to be conservative in how it manages inventory.

“We believe that economic recovery will be slow and fragile with potential periods of increased volatility,” Sadove said on a call with analysts.

Saks reported a second-quarter net loss of $32.2 million, or 21 cents per share, compared with a loss of $54.5 million, or 39 cents a share, a year earlier.

Excluding one-time items, Saks reported a loss of 13 cents per share. On average, analysts expected a loss of 17 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 5.1 percent to $593.1 million, ahead of the $585.2 million that analysts expected.

Gross margins rose 7 percentage points from a year earlier to 37.3 percent as tighter inventories reduced the need for price markdowns.


Saks sees same-store sales rising in the “mid-single digit” percentage range for the remainder of its fiscal year, outpacing a “low-to-mid single digit” increase in same-store inventory levels.

It forecast improved gross margin rates, saying they would hit 39 percent in the second half of its fiscal year.

Saks has been vigilant in managing its inventory to avoid a repeat of the deep discounts it offered in late 2008 to clear merchandise during the financial crisis.

“It’s wise to drain inventories right now a little bit because the third quarter is going to be very soft,” said Milton Pedraza, chief executive of the Luxury Institute, a consulting firm. “That promotes price and margin stability.”

Similarly, off-price retailer TJX Cos Inc , which operates T.J. Maxx and Marshalls, said inventory was down 13 percent during the quarter. CEO Carol Meyrowitz said the company will further reduce markdowns.

A number of major department store chains such as Macy’s Inc, Nordstrom Inc  and Kohl’s Corp have enjoyed strong same-store sales increases in recent months, putting pressure on off-price channels and outlet stores.

Saks, which operates 50 Saks Fifth Avenue stores and 55 OFF 5th outlets, said same-store sales growth at its outlets during the quarter was lower than the companywide average, though those outlets were up against tougher numbers to beat.

Saks has also been shutting underperforming stores. On Tuesday, the company said it was closing Saks Fifth Avenue stores in Plano, Texas and Mission Viejo, California, bringing to five the number of closings so far this year.

Sadove said that it might close a few more Fifth Avenue stores. The company plans to open a handful of its lower-priced OFF 5th outlets annually in the next few years.

Saks shares were up 26 cents, or 3.4 percent to $7.87 in afternoon trading, while TJX shares were up 86 cents, or 2.1 percent, to $42.23.

August 12, 2010

Social networking and luxury

Larry Pimentel, President and CEO of Azamara Club Cruises 05 August 2010

It once was thought that online social networking was the exclusive digital playground of kids and job hunters. But increasingly social networking is proving to be one of the most powerful channels to deliver personalised marketing messages directly to luxury consumers.

As a travel professional, you know that you need to engage your clients wherever they are located. And right now they are flocking to online social networking websites. Are you feeling a bit intimidated by social networking? Don’t be! You can easily embrace the channel to elevate relationships with your clients and market luxury travel to a select audience.

There are more than 120 million active users of Facebook in the USA alone. Luxury brands such as Gucci, Louis Vuitton and Tiffany & Co have tens of thousands to hundreds of thousands of devoted “friends” on this channel. Even on Twitter, approximately 20 percent of “tweets” mention a brand somewhere in their text.

Still think your clients are not engaged in online social networking? In a recent survey conducted by the Luxury Institute, 72 percent of consumers with an average household income of $415,000 said they belong to a social networking site, with Facebook and Twitter ranking among the top three fastest growing sites. There also is plenty of room in this realm for you to start a conversation about up-market and prestige brands with a potential client.

So why is social networking so “hot”? Like other media, social networking helps you tell a story. But what differentiates this new channel is that it helps tell the story in real time as it unfolds. The immediacy of social networking channels makes you the “insider” and the “go-to” expert.” They also help you efficiently communicate with a large number of clients simultaneously.

Social networking also gets your audience, and your clients, involved. It invites them to engage in a discussion with you and your other clients in a forum that you’ve created, helping you to build and enhance your client relationships on a whole new level.

Through the proliferation of smartphones with social networking capabilities, such as iPhones and Blackberries, your clients can now receive and respond to your Facebook and Twitter updates wherever they are, whenever they want. Up to 30 million active Facebook users access the service through a mobile device. Now you’re doing mobile marketing!

Many of these social networking websites are very user-friendly and do not require technical expertise, so almost anyone can do it. All you need to do is sign up and start posting. Be sure to invite all of your clients to “like” your Facebook page and “follow” your Twitter feeds. If you have a blog, add a button that allows visitors to join your social network with just one click. And while you’re doing that, be sure to “retweet” your Facebook update and post your tweets on your Facebook page. In this way, you can connect with people in the various communications channels that you own.

Keep things fresh with regular updates, but stay on topic. Creating a store of interesting discussion topics can be very simple. Ask your friends and followers what their opinions are on a luxury travel news item that you saw during your morning headline searches, or briefly recount a memorable luxury travel experience that you can deliver again. Someone may ask you to tell them more, and that someone may become a new client.

Social networking sites also are great channels to gather intelligence about what your clients are thinking about certain topics. Spark a conversation by asking a question like what port city offers the best fine dining. Or survey your friends and followers to see what they think will be the top exotic region to visit next season.

Of course, timely responses to your Facebook friends and Twitter followers are critical to your social networking success. In the luxury sector, you know that service is a prerequisite. Responding to feedback from your Facebook friends and Twitter followers is an extension of that high-touch service. This, in turn, represents an opportunity for you to create a new relationship or foster an established one.

Though the internet is not a new space, engaging luxury travel clients through social networking is a new way of doing business. Luxury brands are flourishing through social networking and luxury consumers are paying attention – perhaps even more than the average consumer. Are you the one who can help them find an enriching experience in their search for information through social networking? In the end, if you don’t engage your clients in the places where they are, someone else most certainly will.

August 11, 2010

How Affluents Use Mobile for Shopping and Buying

AUGUST 11, 2010

Do the habits of the ultrawealthy point to the future of m-commerce?

The best mobile commerce user experience comes from downloading shopping apps on a smartphone. Though growth in smartphone sales is increasing and the devices are spreading through the population, smartphone owners still tend to be more affluent than average.

And affluents may be taking the lead in shopping and buying via mobile. According to a spring 2010 survey by, 13% of all US web-enabled mobile users reported purchasing online. That was up from 10% in 2009. InsightExpress found predictably lower usage among all mobile users, at 5% in Q2 2010.

Based on a report from The Luxury Institute, affluent and ultra-affluent mobile users are more likely to make purchases from their mobile devices. One in five respondents with incomes of at least $150,000 said they did so at least rarely, and among users with net worth of at least $5 million m-commerce was even more popular.


Movie and event tickets, along with technology and personal electronics, were the most popular items purchased via mobile by affluents, similar to the general population. But ultra-affluents were more likely to also use their phones to buy high-ticket items like designer bags and shoes, jewelry and automotive products.

Affluents also differed from the general population when asked about the barriers to further mobile commerce usage. Most were not worried about security problems or mobile web hassles, but simply felt no need to shop via mobile.

The types of activities the wealthy used their mobile phones for while shopping were similar to those of the general population. As in the InsightExpress survey of all mobile users, respondents to The Luxury Institute poll were most likely to have used their phone to call and talk to someone about an item. Sending a text or picture message was also popular in both surveys.

Looking up product information was also common, with a view to comparing prices, getting product descriptions, looking for deals and checking store information. These are typical mobile shopping behaviors of all mobile users. Ultra-affluents were less interested in some activities, like price comparison.

While wealthy shoppers have a few unusual habits, like purchasing luxury products on the go, many are simply using the same mobile tools as the general population with greater frequency and fewer concerns.

August 2, 2010

Mining the Glitter

Janet Whitman, Financial Post · Saturday, Jul. 31, 2010

NEW YORK — About a decade ago, Bob Gannicott, a prospector and geologist by trade, walked in the doors of Harry Winston Inc.’s flagship salon on Manhattan’s Fifth Avenue and made a rare and unexpected discovery: The iconic diamond business known as the “jeweller to the stars” was for sale.

Mr. Gannicott was only hoping to work out a partnership with the ultra-luxury diamond retailer to help glean better price information for the hundreds of millions of dollars worth of rough diamonds his firm, Canada-based Aber Diamond Corp., was about to start hauling from a mine in an Arctic lake 300 kilometres north of Yellowknife.

But with cash set to roll in from the mine – one of the richest diamond finds in the world – the idea of owning the upper-crust jeweller outright was starting to make sense, Mr. Gannicott said.

He was coming to realize, after a previous pact with Tiffany & Co. failed to pan out, that the only way a rough diamond marketer like his company was going to secure price information on finished diamonds would be to own a retailer outright.

An acrimonious two-decade family feud between two brothers – Ron and Bruce Winston, who were heirs to the company’s eponymous founder – had made some sort of sale or investment a necessity.

The deal took a few years to crystallize but by 2004, Aber had closed on an acquisition for a 51% stake in Harry Winston for US$85-million. In 2006, the diamond maverick bought the remaining 49% for US$157-million.

The strategy has paid off in part: Aber, which in 2007 renamed itself Harry Winston Diamond Corp., has transformed itself from a junior prospector into a high-end diamond marketer that fetches some of the richest rough diamond prices in world.

Things haven’t gone so smoothly on the retail end, however.

Some investors and analysts complain that the Harry Winston retail business – which made its name as red-carpet staple for Hollywood A-listers like Gwyneth Paltrow, Madonna and Halle Berry – has done nothing but lose money, dragging down the mining company’s overall bottom line.

While some are hoping the company will cut its losses and spin off the retail business, Mr. Gannicott defended the unlikely acquisition, saying it is performing as expected and would have turned in a robust profit in 2009 were it not for the financial crisis that gripped the world in 2008.

“We never intended to draw earnings out of this early on,” Mr. Gannicott, the 63-year-old chairman and chief executive of Harry Winston Diamond Corp., told the Financial Post. “We could have just said we’ll leave it at five stores, spend a bit of money on marketing and let it throw off a few million a year…. The idea was to grow it into an international business that, in time, would be worth significantly more value and generate significant earnings.”

Mr. Gannicott, who got his start in the business as a miner when he left his native England for Yellowknife at the age of 19, said the Harry Winston business seemed barely touched since the late 1970s, when the company’s namesake founder died. “The company became like a Sleeping Beauty castle. It’s a good thing nothing silly was done with it, like a perfume line.”

Expanding the retail business is not unlike mining, he added. “When you spend money on exploration, it comes straight off your bottom line. What we’re focused on at Harry Winston is not to take profits now, but to grow it in a sound manner.”

When Aber first took a stake in Harry Winston, the jeweller had six salons: two in the United States, two in Europe and two in Japan. Under its new ownership, it expanded to 19 salons, with six new U.S. locations and three more in Japan, as well as four locations in other parts of Asia – a region that’s expected to see a surge in demand in the coming years.

The company plans to nearly double its store count by 2016 to 35.

To revive its stagnant product lines and marketing efforts, Mr. Gannicott in January hired Frederic de Narp, who headed rival luxury jeweller Cartier’s North American division, as the new chief executive of its retail business.

Mr. de Narp proposed a five-year plan for his new boss that puts the business on a path toward turning an annual profit of 10% through the introduction of new products, jewellery collections, brighter lines and additional watches lines.

“The world has come out of a dark place in the last two years,” the Brittany native told Harry Winston investors at the company’s annual meeting at Toronto’s Fairmont Royal York Hotel in June. “And the market conditions today are right for Harry Winston.”

With only an estimated 15% of the US$150-billion in global jewellery sales spent on branded jewellery, the opportunity for Harry Winston, one of the most prestigious names in the business, is huge, he said.

Mr. de Narp also noted that while demand for jewellery and high-end watches is increasing, local jewellers are being forced to close their doors because of the financial crisis. “Where do they go if those local jewellers close every day? They will go to Harry Winston,” he said.

In a move that will help fund its retail expansion, Harry Winston announced last week that it’s buying back a stake in its rich Diavik diamond mine that it was forced to sell in March 2009 to avoid going under amid the financial crisis.

The purchase from Kinross Gold Corp. – which made the Toronto-based gold producer a handsome profit – will restore Harry Winston’s 40% stake in the mine and give its cash flow a nice boost.

Harry Winston owns the development – Canada’s largest diamond mine – with international mining behemoth Rio Tinto.

Part of the draw for investing in retail is that the mine is a depleting asset and could be exhausted in 12 years, while the retail business can keep expanding as world demand grows.

Trying to strike it rich with another mine would be a huge gamble. Mr. Gannicott noted that since 1870, in the history of diamond exploration, 5,000 kimberlites – the volcanic rock best known for carrying diamonds – have been discovered, 850 of which contain diamonds, and only 50 of which were economically viable to mine.

In sharp contrast, the gold industry discovered 1,025 viable mines in the same period.

Still, Mr. Gannicott isn’t ruling out hitting on another mining development.

One potential target, according to some industry analysts, is Toronto-based Mountain Provinces Diamond Inc. It’s main asset is a 44% stake in Gahcho Kue, one of Canada’s largest diamond deposits and the largest diamond mine under development around the world.

“We talk all of the time, but it’s a question of value,” said Mr. Gannicott. “Its share price is already substantial.”

Investing in retail gives the company a chance to participate in the two most lucrative ends of the business: selling rough diamonds and finished jewellery.

Mr. Gannicott originally thought its Diavik diamonds could be sold directly to its Harry Winston salons and made into fine jewellery in the Fifth Avenue townhouse that is home to its flagship store.

But the Canadian government frowns on such transactions, preferring instead that the rough diamonds be sold on the open market to ensure it gets the maximum tax windfall. “They prefer arms-length sales,” said Mr. Gannicott.

Some analysts and investors would prefer the company give up on retail and focus on the part of the diamond business that’s given it the most success and the highest profits.

“If the retail part contributed zero you could ignore that and focus on the mine part of the business, but the fact is, historically, it’s been a negative contributor to earnings,” said John Hughes, a Toronto-based analyst with Desjardins Securities Inc. “It’s taken away from what the mine has done.”

Mr. Hughes had a “buy” rating on Harry Winston’s stock, but downgraded it to “sell” a few months ago after the shares zoomed above $10.

The stock’s had a huge run since, sinking to a low of $2.62 last year before Kinross came to the rescue and took a stake in the company.

It ended regular trading on the Toronto Stock Exchange on Friday at $12.74 a share.

“It’s an expensive stock by all measures unless you assume there’s a sustained turnaround in the retail business,” said Mr. Hughes. “I’m not willing to ask my clients to take that risk, given the history of consistent operating losses. I don’t think there are any quick fixes for the retail business.”

John Kaiser, an independent analyst and editor of the Kaiser Bottom-Fishing Report, said that owning the Harry Winston salons will give the company a longer life beyond when the Diavik mine is depleted. But he’d also like to see the company invest in another mine, such as the Gahcho Kue. “It’s a natural,” he said.

Mr. Kaiser said he advised his readers to buy the stock after Kinross took a stake in the company and he’s now mulling whether to remove that recommendation now that the shares have had such a spectacular run-up.

While Wall Street might be skeptical of the Canadian miner’s retail ambitions, others see strong upside for the brand, which was almost frozen in time as the Winston brothers squabbled over their fortune.

Milton Pedraza, chief executive of the Luxury Institute, a research firm that follows the industry, said that long-term prospects for the Harry Winston brand are very good, based on his surveys of the super rich with individual net worth of US$5-million or more.

“I can say, ‘My dear darling, I just bought you a diamond from 47th Street,’ ” a district in midtown Manhattan well known for its row of diamond wholesalers, Mr. Pedraza said. “Or I can say it came from Harry Winston or Cartier. That will have far higher value psychologically, even if it has the same carats.”