Quoted in it's entirety from www.startribune.com
Luxury goods are selling again
Bargain-hunters are buying minks, yachts and high-end cars, which may signal a crack in a stubborn recession.
By DEE DePASS, Star Tribune
Last update: September 13, 2009 - 12:29 AM
It took a year of searching, one deep breath and a $15,000 discount for Russ and Rita Urevig to finally buy the boat of their dreams: a 36-foot Carver Cruiser powerboat with teak trim, two bathrooms, sleeping room for 10 and a price tag under $100,000. They couldn't be happier.
"We were a little hesitant" because of the recession, said Rita, who docks the boat in Duluth. "But the price was right, so we took the plunge and have not regretted it for one minute. It's like our cabin on the lake."
The Urevigs' purchase is one example of what appear to be calculated and pricey splurges by thrift-weary consumers who are beginning to re-indulge in luxury items a year after financial markets collapsed, sparking the deepest recession since the 1930s.
But today's purchases come with a twist: discounts that are simply too deep to ignore. Think bargain bling, fab furs that stop at the hip (not the ankle) sensibly priced boats and previously owned luxury cars.
Add deep discounts, generous trade-ins and watered-down wish lists and the combination is enough to begin moving inventory.
"Americans always love a bargain and if something is priced right, maybe a pretty severe discount, then there is going to be a market for it," said Minnesota state economist Tom Stinson. "There still are wealthy people. The recession didn't reduce everybody to poverty. But people shouldn't be fooled that the economy has suddenly turned around that we are going to be able to spend like drunken sailors again."
Yet shares of Tiffany & Co., which reported better-than-expected results this past quarter, have soared about 60 percent since Jan. 1 -- far higher than the broader Standard & Poor's 500, which is up about 17 percent.
Stock markets, which are considered leading indicators of future economic activity, have climbed sharply since hitting their bear-market lows in March. As the spring and summer wore on, other indicators have given consumers comfort. The housing market -- where the crisis originated -- appears to have bottomed. And although unemployment continues to rise, the number of layoffs has slowed, to about 216,000 in August. During the recession's worst months of December, January, February and March, monthly job cuts exceeded 650,000.
But today, certain indexes show cracks of optimism. On Friday, Reuters and the University of Michigan reported that their consumer sentiment index rose to 70.2 in September, compared to 65.7 in August. It was first increase since June.
Auto dealers, real estate brokers and retailers see specks of improvement amid the bleak terrain as at least some consumers summon the will to spend. But forget that slick new Jaguar, which can set a person back $103,000.
"What is selling at a fairly brisk pace is pre-owned luxury cars [such as] pre-owned Jags and pre-owned Land Rovers," said Ted Terp, general manager of Jaguar Land Rover of Minneapolis. "Rather than trying to afford the 2009 and 2010 [models, customers] buy the 2008 or 2007, cars that have already depreciated in value but look new. The last four or five months we have had record sales."
Sales ahoy
Some boat and yacht retailers echo the good news.
"Our business is up for July and August over last year's number," said Wayzata Marine owner Dave Briggs. "With manufacturer rebates, dealer discount, storage deals, six-year payment plans and the value of trade-ins, it's remarkable how affordable it is to get into some of the new boats. When you package it all together, people have been pleasantly surprised."
Of course, recent sales do not necessarily signal a renaissance for the beleaguered boating sector. Minnesota boatmaker Genmar Marine has been operating in bankruptcy since June when it filed Chapter 11. Shares of Brunswick, one of the nation's biggest boatmakers, are still half their 2008 highs.
But used boats are moving. Hiawatha Boat Brokerage owner Dave Hom said he sold 10 large boats last year and 11 so far in 2009 "and the year is not over.''
Rita Urevig, who bought Close Enuf from Hiawatha Boat for her 35th wedding anniversary, said she and her husband "are old-school" and saved a long time before buying their boat in June.
The recession and fear of a layoff "have always been in the back of our mind," she said. "But you have to be prepared, get yourself in a [proper] financial situation. You can't live each day wondering if [a layoff] will happen to me in corporate America, because it will make you crazy."
Her daughter and son-in-law have adopted that motto. They just signed a construction contract to build a new home in Duluth. "The interest rates and building costs were down significantly from when they last got a bid for the same floor plan," so they decided to go for it, Urevig said. "They are excited. They've been pondering this for well over six years."
Similar tales bode well for the forlorn housing market as people find bargains in new homes and foreclosed properties. Hints of recovery recently also hit the highbrow retail stocks of Tiffany, Saks and Nordstrom. They doubled or tripled in value since March thanks to deep cost cuts and slowing declines in sales.
At Tiffany, where worldwide sales fell 16 percent during the second quarter compared with a year ago, executives are thrilled that revenue declines are slowing and that select categories of jewelry are actually flourishing.
"Our silver jewelry category is performing better than our high-end diamond category," said Mark Aaron, head of investor relations for Tiffany. He recently strolled through Tiffany's Manhattan store with an investor who was surprised to find the place so busy. Aaron said some customers are still buying $50,000 and $100,000 diamond jewelry. There are just fewer of them.
However, other customers are "trading down" and settling for $300 silver bracelets when what they really want is the $1,000 gold one. Other customers broke free from their strict policy of restraint to pounce on $200 silver bracelets.
"They have paid down a bit of their credit card bills ... and realized that the world has not come to an end," Aaron said. "Not to downplay or sugar coat the current environment ... but it appears that the tide is slowly turning in our favor."
Recovery abroad
Economic recoveries overseas are also pushing some luxury retailers and wholesalers to expand. Tiffany is opening 13 new stores this year, but just three are in the United States. Similar overseas activity is helping other sectors, including the fur trade.
"Europe is buying skins and China is buying skins for Chinese consumption and they are projecting good business in Japan," said Sheldon Rockler, owner of the Minneapolis wholesaler L.A. Rockler Fur Co. There is a hint that things might be improving in the United States.
"The fur business was affected by the recession. No doubt about it. We are whipped cream, after all," Rockler said. "But we feel that things are starting to come out of it."
"Strollers" and jackets that stop at the knee or hip have propped up industry sales in the last two years. At $1,500 to $5,000, they are less expensive than the full-length prize, but still sport the luxurious look many women crave, he said. Plus, there are signs that richer inventory will move this year, despite retail prices that run $2,500 to $350,000.
"A friend of mine who works in Neiman Marcus in Detroit said they sold one Russian sable coat for $350,000. That floored me," said a delighted Jim Burtrum, owner of Burtrum Furs and Leathers of Saginaw, Mich. His friend's luck may be rubbing off.
Burtrum, who gets his furs from Rockler in Minneapolis, recently doubled his own sales. "I couldn't believe it," said Burtrum, who slashed his retail prices a whopping 80 percent in the spring. "I decided that some profit was better than none,'' he said.
Dee DePass • 612-673-7725
