You could call it the curse of The Devil Wears Prada. While the hit movie about a fashion editor from hell showcases dozens of high-end and mainstream brands, the sweet smell of success isn’t rubbing off on Wall Street.
The share prices of brands that got placement in the movie have almost all slumped more than the wider stock market in recent weeks — possibly reflecting a new caution about discretionary spending among American shoppers.
Phillips-Van Heusen Corp. (owner of the Calvin Klein brand), jeweler Tiffany & Co. Inc., coffee chain Starbucks Corp., steakhouse chain The Smith & Wollensky Restaurant Group Inc. and bookseller Barnes & Noble Inc. all got their moments in the movie — and all have had moments to forget in the stock market.
Higher gasoline prices and interest rates — which raise the cost of credit-card debt — may be deterring consumers across all income groups, analysts said, but it’s the middle class and the “nearly rich” — those worth between $1 million and $5 million — who are cutting back on luxury goods and services.
“Instead of buying the $25,000 watch, they’re buying the $10,000 watch,” said Milton Pedraza, CEO of The Luxury Institute.
Big signs of a consumer pullback came this week when Brunswick Corp., the world’s largest maker of recreational boats, cut its earnings outlook, and recreational vehicle maker Fleetwood Enterprises Inc. posted lower-than-expected earnings.
Among the “Devil” brands, shares of Philips-Van Heusen and Smith & Wollensky have declined about 20 percent since May 1, while shares of Tiffany & Co. have fallen 11 percent. The Standard & Poor’s 500 Index has dropped 5.3 percent in the same period.
Barnes & Noble shares have lost more than a quarter of their value since May 1.
Even a high flyer like Starbucks has not escaped the Prada curse — or at least was not helped by placement in the movie. Shares dropped 11 percent in the past week after it announced June sales growth of 6 percent at coffee shops open at least 13 months, against expectations of as much as 8 percent.
Another of the darlings of the stock market in recent years, luxury handbag retailer Coach Inc., fell about 27 percent since a March peak.
With gasoline prices close to all-time highs, even the rich may pause before driving to purchase a luxury item.
“When you pay $3 for a gallon of gas, even if you have a lot of money, you suddenly say, ‘Hey, wait a minute, I just filled my tank of gas and I got rid of 40 bucks. That’s incredible. That’s indecent,”‘ said Kurt Barnard, president of Barnard’s Retail Consulting Group.
“Those are things that precipitate the desire to hold on to your money and to go about spending it judiciously.”
To be sure, there are other factors in play.
Barnard said the high-risk nature of fashion may also be to blame for dwindling sales among high-end clothiers like Polo Ralph Lauren Corp., down 21 percent since May 1.
“Many high-end retailers have failed to come up with designs and fashions that are strong in sweeping consumers off their feet and into the store,” he said.
Similarly, Barnes & Noble and other booksellers are being hurt by a lack of big hits this summer.
A recent study by WLS Strategic Retail shows that customers have also been more cautious about buying on impulse.
“Two-thirds of the population is saying that before they buy something, they stop and ask themselves ‘Is this a smart use of my money?’ That’s up from 48 percent in 2004,” WLS principal Candace Corlett said, referring to the company’s 2006 survey.
Barnard said he expects luxury retailers to suffer as long as gasoline and other commodity prices remain high — which could be a long time.
“Frankly, we see absolutely no light at the end of this tunnel,” he said.
© 2006 Reuters