Upscale LI retailers seeing more customers
During the past several weeks, Elisa Ruroede has encountered a heartening sign: Potential customers who are new to boating have come into Port of Egypt Marine Inc., a high-end, family-run boat dealership, marina, hotel and restaurant complex in Southold.
"I have people coming in I already know and some brand new people who are new to boating, [and] we haven't had that in a while," said company president Ruroede. "I wouldn't say we're out of the hole, but we are feeling the love."
The hibernating luxury customer has begun to stir.
Many of Long Island's upscale retailers say they have begun to see an increase in customer traffic and, in some cases, a consistent, if modest, growth in sales this year. The stock market has bounced back, and customers also are showing more confidence about their own finances, they said.
Economy's still fragile
Last month, chain-store sales rose 2.6 percent for stores open a year or more, according to the International Council of Shopping Centers, with the luxury segment showing the strongest gain, 6.6 percent.
Yet, even with signs of some stabilization, retailers acknowledge the economy and the high-end market are still not on firm ground.
"We are seeing a resurgence in the luxury market but not to where it was in its peak," said Stephen Sadove, chief executive of Saks Inc. "The customer is back, and I've been pleasantly surprised in the strength of purchases at higher price points." But he later added, "This is clearly a fragile economy."
During the recession a large part of the luxury customer base put the brakes on spending. Upscale retailers lost the aspirational shopper, for whom luxury items are more of a reach economically and who had been helped by once abundant credit, noted Marshal Cohen, chief industry analyst for the NPD Group, a Port Washington market research firm. Many in the industry estimate luxury sales fell by up to 25 percent.
"They [retailers] were selling to customers who really weren't theirs," Cohen said.
A new survival strategy
Upscale merchants had to quickly adapt during the past year, keeping inventory tight, expanding offerings to include less expensive merchandise and stepping up their marketing activities with more events, direct mail and social media tools and calling loyal customers. All the while, they said, they have maintained their high service standards.
Marshs, a Huntington upscale clothing store owned by the Connecticut-based Mitchells Family of Stores, began offering a wider selection that included the $2,700 suit as well as the $795 suit, dress shirts at $395 and those priced at $95, said Chris Mitchell, who manages Marshs. "Luxury" was replaced by the concept of "approachable style," advertised on the store's front windows.
The strategy fit the mind-set of their consumers, who didn't really trade down brands during the recession but did sit out a few seasons. The company has seen solid growth this year and, in March, acquired the high-end San Francisco area clothing retailer Wilkes Bashford. In May the company merged with upscale Woodbury men's retailer Thomas Miller, bringing Miller, his core staff and inventory to Marshs.
"We [Mitchells company] should be back at peak volume this year through organic growth and the acquisitions," said co-president Russ Mitchell.
Sales at Beltrami, also an upscale men's store in Huntington, have seen a slight increase from last year, but store owner Ben Youdim said the luxury market has a long way to go.
Beltrami, which relocated in July to a larger and better location, has adapted to its customers' shifting shopping behavior. Youdim said he is concentrating on suits within the $750- to-$1,000 range. He offers suits made of the same cloth used by the luxury clothing company Zegna but not made in Zegna's factories, he said.
"We are still giving the fine look and tailoring to customers used to a better-end suit, but he doesn't have to spend that kind of money," Youdim said.
Not until the end of summer did Bayview Kitchens & Baths begin to see an upswing of about 30 percent in customer traffic, said owner Walter Boaro. But, he noted, the pending proposal to end tax cuts for upper-income earners could hurt many businesses, he said.
"Even the luxury market is reluctant to spend, and if we start hitting them with a tax that will take that money away, that will crush this economy," said Boaro, who has cut his staff in half since 2008. "There are hundreds of people who get affected by one little sale. The old trickle-down economics is real."
Whole new retail world
Overall, luxury merchants say they are learning to work in a reconfigured retail world.
In Southampton at The Elegant Setting, customers were in much better spirits this past summer, and sales were somewhat better than last year, said Stephanie Finkelstein, owner of the gift shop. But she had to do a lot more work to keep sales coming in. Gone are the days when customers spent between $120 to $225 on hostess gifts. This summer the price range was more like $50 to $75.
"Last summer they were uncertain and uptight, and this summer they got adjusted to what their new normal was," Finkelstein said.
Since the beginning of the year, 37 percent of affluent consumers said they were spending less, down from 42 percent in 2009, according to an August survey conducted by the Luxury Institute.
For consumers like former bank executive Cindy Verunac, the pendulum has swung back to the middle.
While the economy has made her more conscious of price and waste, her cutbacks are due more to a lifestyle change - her daughter's family has moved in with her and her husband. A cancer survivor, she believes in living life to the fullest. Weekend fine dining and traveling are her luxuries.
"I think everybody, including myself, was shell-shocked and making a lot of changes," said Verunac, 61, of Smithtown, referring to the recession.
"I think a lot of people now say, 'I need to make adjustments, [but] I am not going to deprive myself of everything.' "
Seeing more traffic
Manager of Marshs, a Huntington upscale retailer and part of the Connecticut-based Mitchells Family of Stores.
Sells: high-end women's and men's clothing and accessories, ranging from a Diesel flap-pocket men's shirt for $120 to a $1,295 Lela Rose cocktail dress.
Owner of Bayview Kitchens & Baths, a Port Jefferson business that sells and installs high-end cabinetry for all rooms.
Sells: cabinet brands like Wood-Mode, including the brand's semi-custom line for mid-range to high-end projects.
President of Southold's Port of Egypt Marine, a boat dealership and marina, hotel and restaurant operation.
Sells: Boats, from 18 feet to 36 feet in length, ranging in price from mid-$40,000 to $500,000.
The List price for the 2011 Grady-White 330 Express pictured is $389,236 dollars.
President of Ferrari-Maserati of Long Island. Consumer demand for Ferrari automobiles remained high during the recession, he said.
Sells: Ferrari and Maserati automobiles, including the Ferrari California, which starts at a base price of $192,000.
State: LI's private jobs grow for third month in a row
Photo credit: Newsday / Alejandra Villa | Ben Youdim, owner of Beltrami Ltd. a men's clothing store. (January 2010)
Long Island's private sector had 5,400 more jobs in June than it did the same month a year ago, marking the third month in a row that the local economy has added jobs. But the growth overall continues to be weak and led by sectors with lower-paying jobs.
In the May period the economy added 700 jobs, revised up from the previously reported 500, according to New York State Labor Department data released yesterday. And in the April period it added 5,000 jobs. June's 6.7 unemployment rate was unchanged from May, but remains considerably above the 4.6 percent of June 2008, the start of the recession on Long Island.
"It isn't as dynamic a growth as we would like now," said Gary Huth, the department's principal economist for Long Island. "But each month is a further confirmation that we are moving further ahead."
The trade, transportation and utilities sector, which includes retail, led job increases in the June period - expanding by 6,200 jobs from a year ago. The retail sector, which was hit hard during the recession, drove most of the new jobs in the category. But its continued strength is uncertain.
"Long Island has done very well in terms of consumer spending in the first half of this year, as indicated by trends in sales tax revenue accruing to Nassau and Suffolk counties," said Pearl Kamer, chief economist for the Long Island Association. But she added, "The pace of job growth remains extremely modest on Long Island, and unless there is faster job and income growth here, it may be difficult to sustain the recent pace of consumer spending."
Some local retailers reported increased business and hiring.
Debbie Blakla, the manager of Libutti Diamond Jewelers in Huntington, estimates that the store's sales were up 30 percent in the first six months of the year compared with last year, and the store has added another employee, bringing the staff to 10. She attributed the increased sales in part to the store's focus on value-conscious customers. In fact, it now features a new, more moderate line of engagement rings.
"People are still looking to get engaged, but they want quality and value," she said.
At Beltrami men's clothing store, also in Huntington, owner Ben Youdim said that sales were ahead 20 percent in the first six months of this year compared with last year, and he has hired a part-time employee for sales who joins the tailor he already employed.
He attributes the increased sales partly to the appeal of his better-to-moderate clothing lines and to the fact that he allows people who can't come during regular store hours to make appointments.
While growth is welcome after the job market had contracted for close to two years, Kamer worried about the continuing rise in lower-wage jobs in sectors such as retail and health care and the continuing losses in the higher-wage professional and business-services category and in financial activities.
The state lost 8,500 jobs in the June period. But its unemployment rate inched down to 8.2 percent in June from 8.3 in May. State data, unlike local data, is seasonally adjusted.
Dressing Men, 'From T-Shirts To Tuxedos'
April 15, 2010 By
Despite national trend, LI banks keep lending money
February 14, 2010 By
Photo credit: Newsday / Alejandra Villa | Ben Youdim, owner of Beltrami Ltd. a men's clothing store. (January 2010)
At a time when credit was hardest to find, Long Island's small and mid-size banks bucked the trend and lent more money while lending nationwide shrank, a Newsday analysis shows.
Through the first nine months of 2009, the period that most experts believe was the worst of the recession, banks across the country made $227 billion less in commercial loans than in the same period in 2008, a decline of 15.1 percent, according to the Federal Deposit Insurance Corp.
But banks based on Long Island performed quite differently. Commercial and industrial loans, the source of many small- business loans, were up $71.9 million, or almost 6 percent.
Overall lending, including consumer loans, showed a similar disparity. Nationally, it declined by $639 billion, or 8.2 percent, while on Long Island it was up by $2.4 billion, a 5.1-percent increase.
Local bankers say their performance largely reflects the region's economy - although some worry it could still sag further - and their own practice of avoiding speculative lending in favor of focusing on existing businesses.
"It's not sexy," said Stuart Lubow, chairman, president and chief executive of Great Neck-based Community National Bank. "It's not exciting, but it's nuts-and-bolts businesses."
As the economy tries to rouse itself, the availability of credit to businesses is important. It's what allows some businesses to expand, whether it's by hiring more people, adding more space or buying more stock. Many businesses can't grow if they can't borrow.
And it's important to banks, too. Business lending makes up about a quarter of local banks' business, and that percentage is even higher nationally.
Some businesses can't borrow simply because banks are less willing to make loans to marginal customers - and because regulators are applying pressure to keep it that way.
"In commercial lending, we expect banks to provide documented analysis of repayment capacity and collateral support, in addition to the borrower's ability to make timely payments," FDIC chairwoman Sheila Bair said in a speech last month. "We do not want banks to compromise pricing, covenants or other terms to meet loan production goals."
In the midst of that atmosphere, banks also are dealing with prior bad loans and setting aside more money to protect against future losses. Every dollar they set aside for that is a dollar they can't lend.
"They had to pull back on lending," said Douglas Shaw, senior vice president of Suffolk County National Bank in Riverhead. "You need to back up your operation with a certain amount of capital."
"Certainly, that's going to have an effect on our underwriting standards," Bank of America spokesman T.J. Crawford said of rising bad loans. "We've seen a deterioration in small businesses' ability to pay us back."
Still, he noted that lending by Bank of America, based in Charlotte, N.C., and the bank with the most assets in the nation, is up overall, and the bank remains committed to lending to small businesses that qualify.
Fewer bad loans in past
On Long Island, local banks didn't have to reduce their lending, in part because they made fewer bad and speculative loans than banks in other parts of the country. And a half dozen newer banks were fresh sources of credit. "We weren't involved in the bubble economy," Lubow said.
Some regional banks have reduced construction and land development loans. That's partially because there isn't much construction taking place in a severe recession, but some bankers say it's a risky type of loan to make.
Construction is "very sensitive to economic cycles," said Michael Vittorio, president and chief executive of First National Bank of Long Island, based in Glen Head. If they're not solid projects, they're vulnerable to cash-flow problems, he said. Banks elsewhere got into trouble making speculative loans to developers who did not have buyers or tenants in place.
Another factor that enables regional banks to lend is that they have more creditworthy customers, bankers say.
"We make loans because our customers still qualify," said Douglas Manditch, chairman and chief executive of Empire National Bank, based in Hauppauge. The availability of credit from Long Island banks says more about the market than the banks serving it, he said.
"It's not any different here than Wisconsin or Nebraska or North Dakota," Manditch said. "All banks want to make loans."
Easier to lend on Long Island
Not only is the market different here, so far the economy has been, too - and that's another factor. Even with unemployment up to 7 percent on Long Island, that's still much less than the national rate of 10 percent. That and the lack of speculative construction has resulted in a healthier market, making it easier to lend.
As a result, said Bethpage Federal Credit Union president and chief executive Kirk Kordeleski, "banks and credit unions that made it through this cycle will be able to continue to lend."
Some, however, caution that Long Island hasn't necessarily dodged the worst - it's just going to catch it later.
Vittorio noted that unemployment is creeping up. Manditch said the high rate of foreclosures on Long Island is "scary."
Things will worsen, and there will be fewer qualified borrowers, said Joseph Ficalora, chairman, president and chief executive of Westbury-based New York Community Bank, the largest locally based bank. "We are in a protracted period of depreciation," and small improvements in the economy don't change that, he said. "I'm going to suggest there is more risk on the horizon than reward in regards to real estate."
If that risk becomes reality, credit will shrink here, too, he and others said.
"A certain degree of humility in this business is always appropriate," Vittorio said. "We're not better than anyone else. Things can change rapidly."
Applying for a loan? Make friends with your banker
The one thing it seems small businesses need to get a loan from a bank -- more than a good credit history, even -- is an existing relationship with a banker. Not only do bankers say they're willing to lend to struggling businesses if they know enough about their ability to repay the loan, but a sampling of small businesses' experiences shows the same thing.
Three Long Island banking stories
Owner. Ben Youdim
Business. Men's clothing
Youdim got a line of credit last year from Citibank to help him move his high-end men's clothing store, Beltrami Ltd., from Great Neck to Huntington. He said he's sure he wouldn't have gotten the credit if he hadn't had accounts with the bank for more than a decade.
Owner. John Mangione
Business. Marketing firm
Mangione tried and failed with three banks to get a $250,000 line of credit to expand his Johnny Sax Marketing Solutions in Ronkonkoma, even though he had an income-producing building in Deer Park to offer as collateral.
"At the end of the day, you need to be hugging and kissing your banker," said Mangione, 51. "I understand that. I preach that in my own business."
Mangione said he raised the money he needed from private investors, but he's working on establishing a relationship with a bank.
Owner. Craig Mehlsack
Business. Limo service
Sought. To keep existing line of credit
Mehlsack for years has had a line of credit with HSBC, his regular bank, he said. Indeed, the bank offered it to him about six years ago and encouraged him to increase it a couple of years later, he said.
Mehlsack said he used it as an insurance policy for Top of the World Limo, the company he owns in Kings Park with his wife, Tammy. In recent years, he said he's used it to pay the company's insurance premiums.
"It's a personal loan to my business," he said.
But his ability to make that loan may become restricted, because he said HSBC has frozen his personal line of credit while it reviews whether he's qualified -- even though he said he's never missed a payment.
If banks are doing this to other business people, Mehlsack said it will hurt the ability of the economy to recover.