Department stores are losing the luxury business

Traditional department stores are losing luxury shoppers, according to a report on the luxury market.

Total retail sales in traditional department stores have dropped 13 percent in the last five years, from $96.3 billion in 2000 to $84.1 billion in 2005, according to “Luxury Report 2006” from Unity Marketing. While Wal-Mart and other discount stores have siphoned off sales from lower-income customers, the luxury shoppers, long the most loyal customers of department stores, are turning to other shopping destinations—particularly when it comes to shopping for the home.

“The fact is many of the department stores we think of for luxury shopping—Nordstrom, Neiman Marcus, Saks Fifth Avenue, Barneys—don’t place a lot of emphasis on home,” said Pam Danziger, president of the Stevens, Pa.-based marketing consulting firm. “These luxury shopping destinations operate more like gigantic specialty fashion stores than traditional department stores on the order of Macy’s or Dillard’s. And it is these traditional department stores like Macy’s and Dillard’s that are losing their edge among luxury shoppers.”

Bloomingdale’s, Neiman Marcus and Nordstrom Are Luxury Shoppers Favorite Department Stores

“When it comes to marketing luxury brands, everybody is getting squeezed by department store consolidation and shoppers’ disaffection,” Danziger says. “One of the results will be the continued trend of luxury goods marketers, notably Estee Lauder, Burberry, Ralph Lauren Polo, and Liz Claiborne, to open up their own specialty retail shops, which means even more competition to department stores. Others are taking an even more daring step into the discount channels with specialty brands than can be value positioned without threatening the premium lines, like Estee Lauder’s venture with Kohl’s.”

She continues, “But the real future for luxury goods marketers is toward more and better non-store retailing, especially through the Internet,” Danizger says. For example, Bloomingdale’s has targeted direct-to-consumer channels, including Internet and catalogs, as major growth vehicles through 2008. Neiman Marcus, too, has plans in the works to enhance their Internet website to increase sales.

“Admittedly, retailing over the Internet still leaves much to be desired from the shoppers’ point of view, but the simple fact is luxury consumers are using the Internet more as a vital resource for luxury shopping, be it purchasing products, comparing prices or researching purchases. We continue to track more luxury consumers using the Internet and other non-store channels for luxury shopping. In the first quarter 2006 the Internet ranked among the second or third most popular shopping source in 13 out of 16 luxury product categories tracked,” Danziger explains.

“Luxury marketers simply can’t afford to ignore the Internet any longer,” she said.