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Lust for small luxuries keeps Polo strong

By SHIHOKO GOTO, UPI Senior Business Correspondent   |   Aug. 5, 2004 at 3:13 PM
Economists might be concerned that improvements in the nation's growth prospects haven't done much to improve the average consumer's confidence to buy up more goods, but a desire for all things Ralph Lauren seems to be an exception to the rule.

For the designer who makes a living selling an image of a preppy America of yesteryear, business is booming. On Wednesday, Polo Ralph Lauren Corp. announced that its net income more than doubled in the latest quarter on the back of strong sales.

At a time when consumer spending remains tentative as many people continue to fret about job security and disposable income, the New York-based Ralph Lauren reported it earned $13.4 million on revenue of $592.8 million. That's a sharp rise from the $5.1 million it earned on revenue of $477.7 million a year ago.

"With sales in our retail sales outperforming the industry, we see phenomenal response to our luxury designs," said Ralph Lauren, adding that "our company is financially strong and poised to produce record profits for fiscal 2005."

Having started off as a necktie designer who got his first break selling ties to Bloomingdale's department store, the Polo brand has evolved well beyond menswear since then and now offers everything from couture ballgowns to bedroom linen and perfumes.

It also has expanded its markets across the United States and worldwide. In fact, Polo's overseas sales were particularly strong in the latest quarter, with foreign currency gains reached $14 million for the three-month period, compared to $3.6 million a year ago.

But while economists may scratch their heads as to why consumers would be willing to spend well over double the price for a basic t-shirt just because it has a tiny logo of a polo player over on the left corner, there's no doubt that shoppers from Tokyo to London to everywhere in between are hoping that the label will allow them to buy a little bit of the Polo image. And that image of a New England dandy in tweeds wearing an expression of calculated boredom- for a Polo model never smiles, let alone show off his pearly whites- appears to have universal appeal even at a time when animosity towards the United States seems to be getting stronger. Interestingly enough, President George W. Bush's niece is a fashion model for the Polo label.

Moreover, fashion analysts are not rattled by the seeming irony of people being worried about jobs and income on the one hand, and buying up affordable designer labels on the other. For unlike the boom years of the 1990s when ostentatious display of wealth was lauded and fashion house designers became household celebrities, more consumers are now looking to indulge themselves from time to time on a smaller scale, and companies like Polo offer luxuries at an affordable price.

Handbag manufacturers Coach is another company that has succeeded on a similar formula. Granted, unlike Polo, Coach has only expanded from its core manufacturing base of producing handbags and luggage items by making other accessories such as wristwatches, hats, and gloves.

But Coach too saw its finances improve considerably in the latest quarter, as it announced Wednesday that its quarterly profit more than doubled. The New York-based company reported earnings of $65.7 million for the quarter ended July 3, compared to $29.9 million it had posted a year ago. Sales, meanwhile, soared 46 percent from a year earlier to $338.1 million, and the company raised its forecast for fiscal 2005, anticipating sales to reach at least $1.6 billion. In April, Coach said it expected sales to reach $1.55 billion.

Since it went public in 2000, the handbag manufacturer has consistently raised and surpassed its earning expectations, and retail analysts have lauded Coach's ability to secure solid demand for its brand name even at times of economic weakness.

"This quarter's performance demonstrated a continuation of the momentum we have seen throughout the year, as our market share expanded across all channels and geographies...our performance reflected the growing strength of the Coach brand, and consumers' continued enthusiasm for our fresh and relevant product offering," said Coach chairman Lew Frankfort.

Meanwhile, analysts expect overall consumer spending to gain momentum in the latter half of this year on the back of improved economic prospects nationwide. Financial group Ernst & Young expects retail sales in the United States to grow by nearly 7 percent from a year ago in 2004, even as higher gas prices and moderate inflation eat into consumers' disposable income.

Feeling relatively well-off but not wealthy would thus be the sentiment shared by many shoppers, and that might just be the perfect environment to whet the appetite for more affordable luxuries.

© 2004 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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