Leading Edge Insights Into the World of the Wealthy

New York • Vol. 8 No. 5 May 2012

Leading Edge Insights into the World of the Wealthy

Table of Contents:

April Retail Sales Slow Down, But Nordstrom Still Shines Calendar quirks and timings of promotions helped to cool the pace of same-store sales growth in the U.S. from 6.8% in March to 2.5% last month. Nordstrom’s sales rise 7%. 2

Luxury Consumer Experience Index – Luxury Retailers Wealthy U.S. shoppers earning at least $150,000 a year rank the Nordstrom experience highest among luxury retailers. 3

WealthSurvey - Corporate Social Responsibility: The Wealthy Consumer’s Viewpoints High-income U.S. consumers share views on what constitutes socially responsible corporate behavior and how perceptions of a firm's practices influence purchase decisions. 4

April Retail Sales Slow Down, But Nordstrom Still Shines

Calendar quirks and timings of promotions helped to cool the pace of same-store sales growth at national retail chains in April. Excluding drug stores, sales at locations open at least one year climbed by an average of 2.5% last month, compared to April 2011. Comparable sales surged 6.8% in March. Easter Sunday falling late in April last year made for tough year-over-year comparisons.

Rising optimism bodes well for stronger sales growth in the months ahead. The University of Michigan Consumer Sentiment Index ticked up unexpectedly in May to its highest level since January 2008. Falling gasoline prices are a big factor, down from a nationwide average of $3.92 per gallon in early April to $3.74 by mid-May. Consumer confidence is showing resilience in the face of renewed financial—and now political— turmoil in Europe, with governments in transition in France, Greece and the Netherlands. Stocks have slipped, too, since hitting highs six weeks ago. Job creation also sputtered in April, with the U.S. Department of Labor reporting monthly payroll growth of 115,000 jobs; 165,000 were expected.

Saks’ pace of comparable sales gains slowed significantly to 2% in April, down from a 6.3% increase in March. Analysts had expected a 4% uptick. Saks blames a large part of the April shortfall on the company’s decision to exclude cosmetics and perfume from its popular “friends and family” sales promotion last month. Categories that did sell strongly in April include women’s contemporary apparel, dresses, shoes and handbags, as well as men’s accessories, shoes and contemporary apparel. Same-store sales for February, March and April of this year were 4.8% higher at Saks than in the same three-month period in 2011.

Nordstrom topped analysts' forecasts for a 5.8% gain in comparable sales, notching April same-store sales growth of 7% at its 117 flagship locations and 7.3% at its 109 Nordstrom Rack discount stores. For the three months ended April 28, 2012, Nordstrom's company-wide sales rose 13.7% compared to the February-April quarter in 2011. Same-store sales were up 8.5%. The most rapidly growing channel is online. Free shipping and returns for all purchases (beginning last September) prompted a 44.2% surge in mobile and Web sales in the most recent quarter. Investments in e-commerce included new mobile apps, a redesigned website with a more streamlined checkout process and systems to make Nordstrom's complete inventory available to online and mobile channels.

Investors punished Nordstrom's shares following the quarterly earnings release on May 10, sending the stock lower by 4.8% on heavy trading volume. The source of disappointment was net income growth of 2.3%, which fell short of forecasts. Declining profit margins reflected ramped up spending on technology upgrades, a more generous 'Fashion Rewards' loyalty program, and free shipping. Management says it will continue investing to "enhance the customer experience, particularly in e-commerce," focusing on customer needs for "selection, speed and convenience."

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Nordstrom is willing to sacrifice short-term profitability to build the brand's long-term value through a growing base of loyal customers. This is the right strategy. Retailers, especially in luxury, are selling experiences to customers more than they are selling any particular good or service. A program of continuous improvement in customer experience leads to higher degrees of loyalty and, ultimately, improved financial performance.

The strategy is already paying dividends. Nordstrom has been a consistent top performer in Luxury Institute’s Luxury Brand Status Index and Luxury Consumer Experience Index surveys of wealthy consumers dating back to 2005. As you see below, Nordstrom earns top honors among luxury retailers again in 2012 for delivering a superior experience.

Luxury Consumer Experience Index – Luxury Retailers

Wealthy U.S. shoppers earning at least $150,000 a year rank the Nordstrom experience highest among luxury retailers in the Luxury Institute's 2012 LCEI survey. Survey participants report average household income of $292,000 and average net worth of $3 million.

Each brand's LCEI scores (1-10) are comprised of customers' evaluations of its store personnel, shopping environment and their degree of satisfaction with the complete customer experience. Respondents also rated brands on whether premium prices were justified, how likely they were to shop at a particular store in the future, and whether they would recommend the brand to people close to them.

Nordstrom earns the top overall score of 8.41, followed by Neiman Marcus’ Bergdorf Goodman store (8.37), and Barneys New York (8.23). In addition to its top overall LCEI score, Nordstrom ranks first on two critical measures of customer loyalty: 96% of high-income shoppers plan to shop at Nordstrom again, and 94% recommend Nordstrom to family and close friends.

For popularity, Nordstrom also finishes atop the luxury group. It is the most frequently named luxury retailer when respondents are asked which stores they have visited in the past 12 months; 36% of wealthy consumers report shopping at a Nordstrom location. Only 7% of shoppers have visited Barneys in the past year, and a similarly exclusive 6% of wealthy shoppers stepped into Bergdorf Goodman.

Exclusivity helps Bergdorf and Barneys to command higher prices: 76% of Bergdorf's shoppers and 74% of Barneys' say that goods in those stores are worth a significant premium; 65% say the same about Nordstrom's merchandise.

WealthSurvey - Corporate Social Responsibility: The Wealthy Consumer’s Viewpoint

High-income U.S. consumers share views on what constitutes socially responsible corporate behavior, and how perceptions of a firm's practices influence their purchase decisions.

Most (82%) Americans with annual incomes of $150,000 and higher define corporate social responsibility (CSR) as "ethical behavior," which encompasses practices like paying fair wages, clearly stating company values and putting policies in place that enable it to operate by its ethical standards. Philanthropic activity (58%) and concern for the environment (58%) are also top CSR considerations among wealthy consumers.

Almost half (46%) of wealthy consumers say that socially responsible companies deserve to charge premium prices, and 28% say that social responsibility plays a role in their decision to purchase a luxury brand. Women (33%) and younger wealthy shoppers (30%) are particularly likely to consider a brand's CSR when making a purchase, while wealthy men (23%) are not as inclined to do so. Willingness to pay premium prices follows a similar pattern.

Two-thirds of wealthy consumers say that they will not do business with firms that fail to operate ethically. Ethical failures trump shortcomings in both environmental concern (52%) and philanthropy (38%) as reasons for driving away high-income shoppers. Apple, BMW, Coach, Lexus, Mercedes-Benz, Nordstrom, Starbucks and Whole Foods are frequently cited as highly ethical companies. For environmental CSR, wealthy consumers tend to name Apple, Coach, Lexus and Whole Foods as businesses that do it right. Microsoft is a big standout when it comes to perceptions of philanthropic commitment, thanks in large part to the widely publicized work of the Bill and Melinda Gates Foundation around the world.

Members of LuxuryBoard.com have free access to greater details of this WealthSurvey and others via the online Resource Center. To join or learn more about membership benefits, visit www.LuxuryBoard.com. About The Luxury Institute:

The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Luxury CRM Culture consulting process leverages our fact- based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises. More details at www.LuxuryInstitute.com or contact us.

Available for Purchase: Luxury Institute’s Luxury Brand Status Index (LBSI) and WealthSurvey Inventory

2012 LBSI Categories* Automobiles (Europe) Make-Up Watches Handbags (US, China, Europe & Men's RTW (US, China, Europe & Wealth Management Firms Japan) Japan) Women's RTW (US, China, Europe & Hotels (US, China, Europe & Japan) Skin Care Japan) Jewelry Ultra Luxury Automobiles

2011 LBSI Categories* Automobiles (Europe) Make-Up Watches Cruise Lines Men's Fashion (US, China, Europe & Wealth Management Firms Handbags (US, China, Europe & Japan) Women's Fashion (US, China, Europe & Japan) Men's Shoes (Europe) Japan) Hotels (US, China, Europe & Japan) Skin Care Women's Shoes (US & Europe) Jewelry Ultra Luxury Automobiles

Click here for more details about the LBSI

Recently Published WealthSurveys* • Age Obsession NEW • Apple vs. Sony: Brand Face-Off • Corporate Social Responsibility: The Wealthy Consumer’s Viewpoint NEW • Facebook Marketing • Facebook Usage and Trends • Luxury Brand Marketing to Wealthy Millennials • Luxury Brand Stores vs. Luxury Brand Websites • Luxury Brand Stores vs. Saks In-Store Boutiques • Luxury Clienteling and Personalized Service (2010-2011) • Mobile Apps and Commerce Among Wealthy U.S. Consumers • Multichannel Shopping Habits of Ultra Wealthy Consumers • The State of the Luxury Industry (US Consumers 2009-2011) • The State of the Luxury Industry (A Global Comparison of Consumers in Top Markets) apr 2010 • Understanding Wealthy Millennials • Wealthy Consumers and Mobile Applications • Wealthy Consumers in the American Community Survey

Click here for more details about WealthSurveys

*All research is conducted with U.S. consumers unless otherwise indicated