The big spenders are back. As the economy picks up and confidence returns, the U.S. luxury goods business is sprinting out of a three-year slump with a vengeance, retailers said at Milan fashion week.
"Business is spectacular right now. We've sold more alligator shoes so far in 2004 than in 2000-2003 combined," said Karen Katz, chief executive of U.S retailer Neiman Marcus.
According to a study by Italian luxury body Altagamma, sales of upmarket goods in the United States grew 27.7 percent in the first five months of this year and although most people expect that rate to tail off, growth is seen staying strong.
It is a stark contrast from last year when luxury players were desperately trying to eke out growth and scrutinizing the horizon for any recovery after months of sinking stock markets and low consumer confidence, shattered by the September 11 attacks.
"At the high end, what has determined spending habits is the stock market. And right now, a lot of wealthy people are getting wealthier," said Bergdorf Goodman CEO James Gold, forecasting sales would put in "strong double digit" growth this year.
According to Gold, the top 1 percent of America's rich control 33 percent of the country's wealth, meaning the exclusive luxury business has strong leverage by appealing to its small segment of society.
While the last years were painful, retailers and designers said fighting for survival forced the industry to replace the frothy exuberance of the 1990s with solid business sense, faster distribution, better customer care and more exciting products.
"It has been an energy charger for us, made us ask who were targeting, how to do more for the customer. Now we've worked out a better process, hopefully it'll give us more longevity in the face of any future shock," said Ron Frasch of Saks Fifth Avenue .
Quality is key
Luxury players agreed that the 21st century customer would not be tricked into spending money for the sake of it and that fashion houses should follow the brands that kept up sales in the wallet-lock days by innovating and keeping up quality.
Prada, which made black nylon backpacks a 1990s must-have, blazed a growth trail in the turbulent new century by playing with patterns. Louis Vuitton stayed ahead by lightening the mood and painting its trademark LV logo in bright colors.
"People want to spend money on something special -- a brand, design, experience," said Umberto Angeloni of suit maker Brioni.
"The challenge is to appeal both to the old baby boomers who have huge disposable incomes and 20-something bankers or rappers who are making a lot of money and want to spend it," he added.
But while the gold pot seems to be filling up again, luxury market people remember what it was like to be stung in 2000 when the tech bubble burst, markets fell and the party fizzled out.
This time they are looking out for danger.
The mood could change with the U.S. elections in November, and the possibility of tax increases for wealthy Americans. A new cycle of interest rate hikes could make personal debt harder to deal with. And, of course, a new wave of terror attacks could shatter confidence again.
At this week's men's shows, various retailers said they were only ordering as much as they could realistically sell, confident they could pick up more if sales outpaced forecasts.
"I'm very positive up to October, while for Christmas I'm cautiously optimistic," said Howard Socol, the head of Barneys. "We all know now -- so much can change, so fast."
