The Millionaires Are Back
Alexandra Zendrian, 03.30.10, 06:00 AM EDT
Luxury retailers are reaping the benefits of a more confident, wealthy consumer. Buy Nordstrom and Coach.
During the housing boom in the middle of the last decade, luxury retailers reaped the benefits of home-rich consumers, many of whom sucked out their home equity as soon as it built--or even more quickly--taking out home equity lines and spending like the proverbial drunken sailor, but these sailors had style and a taste for the finer things.
All of the flashy spending made everybody a little giddy. In May 2005 private equity investors Texas Pacific and Warburg Pincus paid $5.1 billion for Neiman Marcus Group, parent of the eponymously named poster child for needless indulgence, Neiman Marcus, and its Bergdorf Goodman subsidiary.
When the housing market headed south and eventually imploded, there was a lot of omelette du fromage on the face to go around as the erstwhile nouveau riche profligate home buyers came up dry on equity and went back the dollar store. For many of the high-end retailers, comparable sales numbers plunged more than 20% for three quarters in a row at the end of 2008 and into 2009.
With the housing market minting no more millionaires, the luxury market if it were to boom again would need a new driver of wealth creation--and it found it in an old friend, the stock market.
Nordstrom ( JWN - news - people ), like other high-end retailers, has seen a sales boost lately as consumers emerge from the recession more confident and better able to spend more--not to mention a little richer than they were a year ago thanks to the sharp rebound in stocks since last March.
Investors in luxury retail stocks have already benefited handsomely, maybe even enough to indulge in a few $25,000 Neiman Marcus cupcake cars. Since the market bottom last March, Nordstrom shares have zoomed higher by 246%, Coach ( COH - news - people ) is up 247% and Saks ( SKS - news - people ) has been a monster stock, gaining 395%. The consumer recovery is concentrated at the higher end, which benefits luxury retailers such as these.
