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Department Stores Losing Their Edge with Luxury Shoppers

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Traditional department stores are in the fight for their life. Even as Federated Department Stores continues to integrate the May Department Store chain into the Macy's brand, shoppers are turning away from traditional department stores in droves. 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. Wal-Mart and other discount stores have siphoned off sales from lower-income customers, while the luxury shoppers, long the most loyal customers of department stores, are turning to other shopping destinations, according the Luxury Report 2006 from Unity Marketing. This trend is particularly prominent when luxury consumers are shopping for home luxuries. Not surprisingly, in their annual report Federated Department Stores reported the “weaker businesses in 2005 continued to be in home-related areas.” Commenting on the new research, Pam Danziger, president of Unity Marketing, says, “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. 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 In terms of total luxury shoppers’ usage, Macy’s is the number one department store shopping destination, used by the largest percentage of luxury shoppers in 2005 (23 percent), followed by Nordstrom shopped at by 18 percent of luxury shoppers, then Dillard’s, a shopping destination for 12 percent of luxury shoppers last year. However, when these shopping figures are adjusted by the total number of stores nationwide, a totally different perspective emerges. By creating an index that compares both where luxury consumers shop and the total number of stores, Bloomingdale’s and Neiman Marcus, with an index of 149, and Nordstrom, index of 140, are the favorite department stores for luxury shoppers on a store-by-store basis. The index is based upon a scale where 100 is the average. That means Bloomingdale’s and Neiman Marcus are 49 percent more popular than the average department store for luxury shoppers and Nordstrom is 40 percent more popular. Even though the largest percentage of luxury consumers shopped at Macy’s, it also has the largest number of stores nationwide. That translates into an index of only 40, and Dillard’s with a near equally large number of stores has an index of 30. In other words, Macy’s is 60 percent less popular than the average and Dillard’s 70 percent less popular as a department store shopping destination for luxury consumers. Luxury Marketers Need to Think in New Ways about Luxury Channels of Distribution “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.” “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 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. For luxury shoppers today, especially the hard-working, high-earning consumers with little extra time to shop, the Internet is an essential tool, and so it must become an essential element in sales, distribution and marketing strategies for luxury brand marketers,” Danziger concludes. Contact: Pam Danziger, pam@unitymarketingonline.com or call 717-336-1600. For Media: Charts, tables and graphs about luxury consumer's spending and purchases available on request About Unity Marketing’s Luxury Report 2006 Unity Marketing’s Luxury Report 2006 is the definitive study of the luxury consumers’ buying and spending preferences. This report provides vital market size, growth and demographics for anyone and everyone that sells luxury, from marketers, advertisers, retailers, service providers. The Luxury Report 2006 is an essential tool to understand the dynamics of the luxury market, today and into the future. This important new study of the luxury market provides the results of a four-year longitudinal research study of the luxury market, which combines qualitative and quantitative methodologies. This report is compiled from detailed statistics collected in eight waves of Unity’s quarterly Luxury Tracking surveys during 2004 and 2005. In 2005 over 4,000 luxury consumers were surveyed. The average income of respondents in 2005 was $139,075 and the gender distribution was 65 percent female and 35 percent male. The average age of respondents was 42.9 years, with 47 percent of respondents being Baby Boomers and 38 percent being GenXers. More details about products and brands included in Luxury Report 2006 Details about what these luxury consumers bought, how much they spent, where they made their purchases, and in certain categories the luxury brands they patronized are reported in four major categories of luxury. Significantly more product categories and more brands were included in the 2005 Luxury Tracking surveys, notably: Home Luxuries Art and Antiques (Specific data is collected on already-framed reproductions; unframed reproductions; custom-framed art or reproductions; other custom framing; original art; sculpture, statues, 3D art; antique furniture and collectibles; wall decor) Electronics and Photography Equipment (Computers; iPods and other MP3 devices; cameras; cellular phones; televisions; DVD/video players; audio equipment; home entertainment systems; PDA’s) Furniture, Lamps and Floor Coverings (Lamps and lighting; upholstered furniture; wooden furniture; rugs and floor coverings) Garden and Outdoor (Patio furniture; grills; lighting accents; fencing; power gardening equipment; decorative pots; garden statues; chimeneas and outdoor stoves; garden shelters; water gardens; porch and patio decorative accents) Home Decorating Fabrics, Wall and Window Coverings (Wall coverings, such as wall paper; ready-made curtains, drapes; window coverings, such as blinds, shades; home decorating fabrics for custom upholstery, curtains, drapes, etc.) Kitchen Appliances, Bathroom Equipment and Building Products (Kitchen appliances, such as stoves, ovens, refrigerators; bathroom equipment, such as tubs, showers, toilets, fixtures; kitchen equipment, such as cabinets, countertops; air conditioning/filtration systems; water systems) Kitchenware, Cookware, Housewares (Small appliances; cookware; bakeware; cutlery; storage and organization; barware) Linens and Beddings (Sheets and pillowcases; comforters, spreads; pillows and pillow accents; bath linens; mattresses and box springs; duvets and shams; feather beds and mattress covers; table linens) Tabletop, Dinnerware, Stemware, Flatware (Dinnerware, including fine china, ceramic or stoneware, serving ware and decorative accents; crystal and glassware decoratives, stem ware, serving pieces, barware; flatware, including sterling silver flatware, serving pieces, decorative accents and other flatware) For more information contact Pam Danziger at pam@unitymarketingonline.com

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