Luxury Retailers Having a Merry Holiday Season

Fancy a $20,000 suit of armor under the Christmas tree? Or how about a crystal-encrusted Mrs. Potato Head for $8,000? Or maybe a $50,000 Ferrari go-cart?

While many U.S. retailers are cutting prices to draw crowds and bolster holiday sales, upscale U.S. retailers are having a merry time meeting strong demand for luxury gifts.

The International Council of Shopping Centers (search) expects the luxury market to be the retail story of 2004, with strong sales at upscale Neiman Marcus Group Inc. (search) and Nordstrom (JWN) stores, and Coach handbags being snapped up.

FAO Schwarz, the upper-end toy store that reopened its flagship store on New York's ritzy Fifth Avenue on Thanksgiving Day on Nov. 25, said it had even sold its 3D motion simulator theater with a price tag of $300,000.

Using CD-ROMs, the eight-seat theater can take users on rides ranging from flying off the deck of an aircraft carrier to taking a walk outside the International Space Station.

"We would not give numbers but we have had sales across the board of our luxury goods and we are very pleased," said Kim Richmond, a spokeswoman for FAO Schwarz which also sells the Ferrari go-cart that can travel at 15 mph.

No one was available at Neiman Marcus to comment on how many Americans would be getting a suit of armor for Christmas.

Lower-end retailers aren't having as much fun, with slow sales over the key Thanksgiving-to-Christmas period that accounts for 23 percent of annual U.S. retail sales, the latest data show.

Shoppers who only dream of Fifth Avenue stores have limited spending on gifts to pay higher heating bills and seem to find no compelling item that they just have to buy.

Only two luxury items, jewelry and fragrances, had higher sales last weekend versus last year, one of the year's biggest shopping weekends, according to market researcher America's Research Group.

"We are now back to the pre-September 11 level of corporate entertaining and Christmas parties and this has helped drive sales of evening wear and jewelry," Britt Beemer, the group's chairman.

Beemer said sales of 23 other merchandise categories were lower or flat compared with last year. Toy sales are down with no single hot toy inspiring purchases, while electronics sales are flat.

Facing cheerless sales, many U.S. stores on Thursday embarked on a final round of price cuts, with discounting more widespread than a year ago which could trim earnings.

Gap Inc. (GPS) was offering 50 percent off some items, while Target Corp. (TGT), the discounter with 'cheap chic', was offering up to 75 percent off some goods.

Macy's, owned by Federated Department Stores Inc. (FD), and Kmart Holdings Inc. (KMRT) had hefty discounts, while electronics chain Best Buy Co. Inc. (BBY) cut prices.

Department store operators J.C. Penney Co. Inc. (JCP) and Sears, Roebuck & Co. (S) were expected to gain from their strategies to offer discounts throughout the holiday period.

"Last year most stores did not offer 50 percent off until January but we're seeing these discounts now, which tells the difference between this and last year," said Beemer.

"But retailers at this point are going to be disappointed if they think they can fix Christmas in the final two days."

Analysts expect retail sales growth overall this holiday to be slower than a year ago, with higher oil prices and slow jobs growth crimping spending by lower-income earners.

The National Retail Federation (search), the leading industry association, has forecast sales rising 4.5 percent to $220 billion this holiday after increasing 5.1 percent a year ago -- but this is at the upper end of forecasts.

But No. 1 retailer Wal-Mart Stores Inc. has forecast its December sales rising between 1 percent and 3 percent, compared to an increase of 4.3 percent last year.