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High-end retailers stung by sluggish sales

Tiffany rebounded in its first quarter after missing profit expectations for four quarters.

Kiichiro Sato/Associated Press

Luxury shoppers are becoming more fickle.

While high-end retailers recovered from the recession faster than others, they're now feeling the chill of a choppy global economy, raising fears of a slowdown in wealthy consumers' spending.

In the past week or so, high-end players from Saks Inc. to Ralph Lauren Corp. and Coach Inc. have reported disappointing results. Even Nordstrom Inc., which posted a higher-than-expected quarterly profit, said sales "remained softer than anticipated" and reduced its forecast. Next year the department-store retailer will launch in Canada.

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"We have had a very strong last three years coming off the recession," Mike Koppel, chief financial officer at Nordstrom, told analysts earlier this month. But, he added, "there's been all kinds of stories out there in terms of all the different macro factors that may be affecting consumer spending." On Tuesday, when tony jewellery purveyor Tiffany & Co. reports its second quarter results, a clearer picture of the shifting upscale market may emerge. Tiffany is a barometer of luxury spending and its results may show how resilient affluent shoppers are in the face of worldwide economic challenges.

After missing profit expectations for four consecutive quarters, Tiffany rebounded in its first quarter, helped by higher sales in Asia. But uncertainty lingers. In maintaining its earnings outlook, the New York-based company cited a weaker yen as well as soft sales in its North American division.

"Global headlines will likely create volatility in near-term trading of luxury stocks given limited visibility surrounding high-end consumer spending," Laura Champine, retail analyst at Canaccord Genuity, said in a recent report.

"Sharp movements in precious metal and diamond costs could impact margins and our estimates. Consumer discretionary spending will likely be pressured by tax increases."

Overall business at U.S. jewellery chains has slowed down recently after recovering rapidly from the recession, said Jean Lambert, research director at the International Council of Shopping Centres. Even so, sales are still positive on a year-over-year basis.

Dorothy Lakner, retail analyst at Topeka Capital Markets in New York, said affluent consumers are still spending, although not as much as some would expect.

"It speaks to consumer spending patterns that are still pretty choppy."

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Tiffany will benefit by expanding into global markets, where it is still "the new kid on the block," and by pumping up sales of its lower-cost lines as well as top-end offerings, she predicted.

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