Two Ends of the Market

Two of the nation’s largest warehouse club retailers, Costco Wholesale Corp. (Issaquah, Wash.) and BJ’s Wholesale Club Inc. (Natick, Mass.), reported substantially higher profits for its most recent quarters, both apparently benefiting from cost-conscious shoppers.

Costco, the nation’s largest warehouse club, said its second quarter profit rose 31 percent, while fourth quarter profits at the smaller BJ’s club more than quadrupled.

At the same time, two of the nation’s biggest fashion retailers, Saks Inc. (Birmingham, Ala.) and the Neiman Marcus Group (Dallas), reported higher quarterly profits, but both companies said that sales had softened recently.

Saks, operator of the New York-based Saks Fifth Avenue stores, said same-store sales rose 3.4 percent in February but said its same-store sales in January and February softened from the 9 percent rise in the fourth quarter. Neiman Marcus said its same-store sales fell in February.

Both retailers said the spending slowdown was broad-based but more evident among lower-end shoppers.

Neiman Marcus reported an 8 percent profit gain in its second quarter ended January 26, but said markdowns taken to align inventory with demand hurt gross margin. It also attributed its sales fall-off to a shift in promotions back to January.

“Our sense is that the aspirational customer has pulled back somewhat in response to concerns about the U.S. economy and stock and housing markets,” said Neiman Marcus’s ceo Burton Tansky, adding that luxury customers had also adopted a more cautious stance. But he said he was confident that the luxury buyer would keep spending despite the weakening economy. “The affluent customer is resilient. For them, downtimes are merely a moment in time and do not signal a lifestyle change.”

“This is not an easy environment,” agreed Saks chairman and ceo Stephen Sadove. “We know that there are tough economic headwinds, but we are staying the course strategically, being prudent in terms of growth expectations and inventory, in terms of managing it tightly,” he told Women’s Wear Daily. “We feel very good about our strategies and direction.”

According to WWD, Saks’ agenda for 2008 includes developing a marketing handle for beauty inspired by the 10022-Shoe department at its New York flagship store. Elements of the 10022-Shoe concept, involving increased square footage and higher grade offerings, will be implemented at stores in Beverly Hills, Calif.; Houston; Phoenix; San Francisco; South Coast Plaza in Costa Mesa, Calif., and Miami.

Main-floor renovations are set for stores in Houston and Miami's Dadeland, on top of those being finished in Boston and Naples, Fla. At the Fifth Avenue flagship, “we will be touching six out of the 10 floors,” Sadove said, with renovations of varying degrees, including handbag shops on one, a Kitson shop in men's and a complete redo of the third-level designer floor over time.

“We are again investing in the store base,” Sadove continued, noting that $140 million in capital was spent last year and $125 million is earmarked for this year.

Tansky said Neiman Marcus is entering a new growth phase with Cusp, its four-store contemporary retail division. Four to six additional stores opening are planned over the next 12 to 15 months. The retailer also plans five new full-line stores set to open through 2011. And much of the main floor at Bergdorf Goodman, the company’s New York high-fashion division, will be remodeled to increase jewelry selling space.