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Big spenders returning to the luxury fold Add to ...

In the depth of the recession, Tiffany & Co. struggled to sell $3,200 (U.S.) diamond earrings and $12,000 bangles, while it fared better with $100 silver necklaces.

Today, the situation is reversed, as the high-end retailer grapples with softer sales of jewellery under $500 even as it enjoys a recovery in higher-priced items.

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"The people who are coming in to spend $1,000 or $5,000 or $10,000 or $20,000, they're showing a much greater willingness to spend," Tiffany vice-president Mark Aaron said in an interview on Wednesday.

"That customer is feeling a little better about things, while people who might purchase silver jewellery are spending more cautiously."

New York-based Tiffany and other purveyors of luxury goods are rebounding from the recession in their North American businesses, which are still underperforming their overseas operations.

Retailers such as Saks Inc. and Coach Inc. are beating analysts' quarterly expectations, luring well-heeled customers with pumped-up ad spending and classic styles, while scaling back margin-pinching discounting.

"We have turned the corner," said Milton Pedraza, chief executive officer of market researcher the Luxury Institute in New York.

Still, upscale companies will be challenged to sustain the gains because of the relatively easy comparisons with previous recessionary years, he said.

And wealthy consumers are no longer shelling out for $800 camera bags or other frivolous merchandise, he said. "There's a flight to quality."

At Toronto-based men's clothier Harry Rosen, sales of $5,000 (Canadian) Tom Ford suits and $4,500 Zegna leather jackets are particularly strong, said CEO Larry Rosen. The privately-held retailer's overall sales so far this year have jumped by more than 13 per cent, compared with a decline of 5 per cent in 2009, he said. For this month alone, they've shot up 25 per cent from a year earlier. "The luxury customer has come back."

But the past couple of years have taught Mr. Rosen to be more disciplined in focusing on classics - such as $300 cashmere sweaters - and refraining from taking risks on bright orange sweaters or "off-the-wall" items, he said. This year he is running sales with discounts of up to 20 per cent, compared with 40-per-cent reductions last year.

Saks has also reduced its promotions by offering, for example, "family and friend" discounts of 20 per cent this year compared with 25 per cent last year, CEO Steve Sadove said last week. The retailer's cosmetics markdowns dropped to 10 per cent from 15 per cent. "We are consistently trying to reduce the number of [markdown]events, the brands included, the value of the events, and move toward a more full-priced selling environment," Mr. Sadove said.

Tiffany, which doesn't discount merchandise, raised its ad spending this year - shifting toward previous peak levels - after reducing it to 5.9 per cent of sales in 2009, down from 7.2 per cent of sales in 2008, Mr. Aaron said.

The marketing helped the jeweller perk up its third-quarter sales by 14 per cent, to $681.7-million (U.S.), while profit jumped 27 per cent to $55.1-million; Tiffany forecast a strong holiday season and raised its annual outlook.

Tiffany's revenue in the U.S., Canada, Mexico and Brazil, which makes up about half of its business, rose 9 per cent, although the gains trailed those in the Asia-Pacific region (up 24 per cent;) Europe (22 per cent;) and Japan (12 per cent.)

Same-store sales, an important retail measure, rose 5 per cent in the Americas, below the overall 12-per-cent gain and largely driven by higher prices, which are expected to increase further early next year to offset rising costs of diamonds and precious metals such as gold.

To try to win more business, Tiffany is expanding into handbags, briefcases and watches. It and other upscale retailers are capitalizing on affluent consumers who feel more confident in their spending, helping the chains outperform other merchants whose customers are worried about the uncertain economy and sticking to must-have purchases

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