Choo-Choo! Shoppers May be Trading Up

Chin-up, glossy-floored department stores. U.S. retailers may be experiencing a reversal of fortune, if a couple of recent earnings reports are any indication.

Saks Fifth Avenue, the luxury chain known for $2,500 Oscar de la Renta dresses and $1,000 Jimmy Choos, on Aug. 18 posted better-than-expected sales gains of 4.6 percent at its stores open at least a year. Meanwhile Target, long the darling among stylish but budget-minded shoppers, reported second-quarter sales that were rather colorless – up 1.7 percent, short of expectations.

But don’t run out and buy luxury stocks just yet. Saks is cautious about what the bump could mean for top-tier spending in the long-term, warning that the economy is still in an eggshell period. As such, it continues to manage its inventories with a platinum fist.

Target, meanwhile, hopes to lift sales by offering 5 percent discounts to customers who pay with one of its branded credit cards – a strategic effort to build loyalty. It also has the important back-to-school season to look forward to, as analysts suggest it is stealing share from Walmart.

Both reports, and outlooks, indicate that shoppers are again beginning to prefer service and quality over low price as the economy tosses out occasional hints of recovery. For marketers, and loyalty marketers in particular, this is a welcome sign.

The 2010 Retail Loyalty Index by COLLOQUY, a global provider of enterprise loyalty publications, education and research, shows that low prices drove consumer loyalty in late 2009, and as a result Walmart dominated. This is a complete reversal of 2008 Loyalty Index results, wherein consumers said store environment, product selection and quality service motivated them to recommend a retailer to others.

These latest earnings reports by Saks and Target, and by other retailers including Macy’s, hint that consumers are ready to pay up if it means more tailored service and quality. Macy’s, for example, recently reported a 4.9 percent gain in second-quarter same-store sales. It credits the better-than-expected increase to its My Macy’s merchandising program, which puts buyers and planners right in the aisles of its stores to determine what shoppers want, from New York to Akron to Austin.

And while Target’s sales fell short, so did Walmart’s – for the fifth consecutive quarter. Some reports surmise that Target is drawing shoppers away from Walmart as its own shoppers trade up.

If so, then perhaps this trend is carrying all way the up the retail food chain, from Columbia to Calvin Klein to Christian Dior. I’m no fortune-teller, but loyalty marketers should probably be polishing up their “welcome back” strategies.