Issue of the week: No safe haven for retailers

It’s an article of faith among luxury retailers that their niche is recession-proof, said Jonathan Birchall in the Financial Times. But that belief is being re-­examined after Tiffany, the jeweler whose name is synonymous with luxury, reported last week that second-quarter sales at its U.S. stores fell 4 percent from the same quarter last year. Business has been slowing at Tiffany’s stores since the beginning of the year, with marked weakness in sales of “aspirational” items—lower-priced fashion jewelry such as silver charms. Now the trouble has moved to the higher end of the price spectrum, with “new weakness in U.S. demand for ‘statement’ jewelry pieces priced above $50,000.” Sales were down at seven of Tiffany’s eight New York City–area stores.

Tiffany shares rose after the company predicted a strong third quarter, said Paul R. La Monica in CNNmoney.com. But last week’s Commerce Department report on personal income and spending offers little reason for optimism over the luxury sector or retail in general. After being battered on gas prices and sinking house values, “the consumer is finally starting to show some signs of strain.” The boost from income-tax rebate checks, which fueled a 0.6 percent increase in June retail sales, has pretty much petered out, and the latest government numbers suggest that even that modest rise was overstated. “It appears inflation is a big reason behind the increased expenditures.” And with personal savings falling in July, we could soon be facing a big dip in spending.

That’s just the news that executives at Sears Holdings did not want to hear, said Andria Cheng in Marketwatch.com. “Increased competition and a slowing U.S. economy forced the struggling retailer to accelerate discounts,” driving second-quarter profits down a whopping 62 percent. Sears Chairman Eddie Lampert nonetheless is sticking with his strategy of cutting costs and spending next to nothing on store improvements. And a “woeful strategy” it is, said Robert Cyran in The Wall Street Journal. Consumers simply don’t like Sears’ “tatty” stores and unexciting merchandise; now, Sears shareholders are learning firsthand about “the perils of underinvestment.”

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Sears could learn a thing or two from Target Stores, said Stephanie Rosenbloom in The New York Times. Although the company reported a second-quarter sales decline of 7.6 percent, Target continues to spruce up its stores and experiment with new store formats. In mid-September, Target will open four temporary “pop-up” stores in Manhattan, featuring the work of 22 popular designers. Kathee Tesija, Target’s top merchandiser, calls the funky “bodegas” an attempt to “bring affordable design to the masses,” with fashions typically priced from $15 to $45. The company’s advertising tagline is “Expect more. Pay less.” And with consumers feeling pinched, Tesija says, “we are putting a little bit more emphasis on ‘Pay less.’”