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Saks Inc (NYSE:SKS) CEO, Steve Sadove told CNBC that luxury shoppers appear to be back and in full force. Saks reported a high quarterly profit mostly due to a 20% increase in online sales. Sadove went on to comment that luxury shopping is up significantly but not quite to pre-recession levels. The CEO also credited the good quarterly earnings to the rising markets. He says the financial health of Saks is more dependent on the financial markets than the unemployment rate or price of oil. I find this interesting because you would think that the unemployment rate would have more of an impact on Saks’s earnings because if people do not have jobs, how are they going to buy expensive luxury items? According to Sadove, the financial markets are an indicator of a strong consumer.
The interesting part of retail right now is luxury brands have all reported very good quarters, while discount retailers and cheaper options are reporting losses or very slight profits. It does say something about the consumer right now. Despite 8% unemployment, consumers still have a high taste and they will find a way to afford the finer things in life. Rather than going to Macy’s or another location to save a little money.
The US economy continues to show much improvement and strength in the recovery. Meanwhile, in Europe, the recovery continues to slow and debt infects most of the EU. Naturally, consumers are going to be weak and not be spending more money on a luxury item.
What is interesting to me is that even at $4 gas, luxury retails continue to thrive. Yes, Saks’s internet revenue rose 20% but in store sales were up as well. Studying the American consumer has proven to be quite shocking. You would think that high unemployment and high oil would make consumers stay at home or go to discount retailers. Quite the opposite, they flock to Saks or Michael Kors instead.
Luxury items are making a comeback. They continue to show growth and expanding sales online, as well as in store. Economic conditions are having little effect on consumers’ outlook. People are willing to spend the extra money for luxury. This means the consumer is strong which is good but it also means Americans still are awful at saving money which could be a major downfall in the long term. I would be a buyer of luxury stocks here.