Luxury Goods Retail Sales Say Pamper Yourself

Should you buy Claymore Robb Report Global Luxury ETF (ROB)?

Sam Subramanian PhD, MBA

What a difference time makes! A year ago, lower home values, plunging stock portfolios and massive layoffs prompted the wealthy to restrain their spending on luxury goods. Sales tumbled at luxury retail stores and double-digit declines in same-store-sales became the rule rather than an exception.

As confidence in the economy and financial markets has improved, luxury spending is back. According to Unity Marketing, spending in the U. S. on luxury goods and services vaulted 29% in the third quarter from the second. Consumers with income in excess of $250,000 a year spearheaded the spending increase. Spending was strongest in home, travel, and dining categories.

The return of the affluent to stores is improving the fortunes of luxury retailers. Saks (SKS) surprised investors earning a profit in the third quarter when analysts' forecasted a loss. This represents Saks' first quarterly profit after the first quarter of 2008. In the same vein, upscale retailer Nordstrom (JWN) recently raised its fiscal 2009 EPS forecast.

What's Different for Luxury Goods Retail this Holiday Season?

During the 2008 holiday season, luxury retailers were caught with bloated inventories and were compelled to offer massive discounts to clear goods.

Things are quite different this time. Luxury retailers have cut back inventory dramatically. At Nordstrom for example, inventories declined 6.7% in the third quarter even though sales ticked up 3.5%. Now, luxury retailers are seeking early deliveries of goods to ensure adequate stocks for the holiday season.

Tighter inventory control should also likely enable luxury retailers to hold the price during the upcoming holiday season and widen their operating margins.

Playing Luxury Retailers with Stocks, ETFs, Mutual Funds

Following massive losses in 2008 and in early 2009, shares of luxury retailers are on a tear since the market bottomed on March 9.

Nordstrom, Saks, and Tiffany (TIF) shares have gained triple digits handily beating not only shares of discounters Target (TGT) and Wal-Mart (WMT) but also the S&P Retail Index ($RLX) and the S&P 500 ($SPX).

While the rate of advance for luxury retailing shares can moderate, they appear to have ample room to run further if the economy continues to recover and expand.

One way to play luxury retail is to get into shares of higher quality luxury retailing companies like Tiffany. Tiffany reports third quarter earnings on November 25.

Another way is to get into retail ETFs. Claymore/Robb Report Global Luxury ETF (ROB) offers a pure-play on the luxury theme. Nearly 75% of this luxury ETF's assets are invested overseas. Claymore/Robb Report Global Luxury ETF's top 10 holdings include brands like Swatch (SWGAF.PK)), BMW (BAMXY.PK), and Christian Dior (CHDRF.PK).

SPDR Retail ETF (XRT) is another option for ETF investors. XRT is equal-weighted in nearly 60 retailers. So, smaller luxury retailers carry as much clout as discount titans like Wal-Mart.

With no retail mutual funds focusing on the luxury group, mutual fund investors can look at actively managed, broad retailing funds like Fidelity Select Retailing (FSRPX) or Rydex Retailing (RYRIX).

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