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Michael Kors Shows Retailers Not To Discount Luxury Sales

Shopping for a $2,200 dress? Maybe not, but as Michael Kors' (KORS) successful IPO showed, investors would be wise not to discount the growth of luxury retailing.

Michael Kors was one of the top performing IPOs in recent years, and several analysts contend investors are eagerly anticipating New York designer Tory Burch to follow suit and take her fashion house public.

Even Gap (GPS) is moving into the high-end retail market with its purchase last week of the small, privately held fashion chain Intermix.

Although Michael Kors only went public last year, the Kors brand has been popular around the fashion world for decades. Lead designer Michael Kors gained international recognition as a judge on the popular television show "Project Runway.

A wool and crepe dress from Kors retails for nearly $2,200. But its accessories are cheaper; a travel tote costs $278. Kors' focus on accessories has also helped boost margins. A handbag can retail for three times what it costs to make.

Kors' success has also helped boost Fossil's (FOSL) rise, which produces watches for the company. A watch typically costs $250 to $300.

Analyst Erika Maschmeyer from Robert Baird expects Kors to expand its jewelry sales as it widens distribution in the U.S. and abroad. She reiterated an outperform rating on Kors in November after Kors' Q2 beat estimates.

Luxury retailers traditionally have high barriers to overcome. Typically, fashion designers need to work for years before a label gains acceptance. That's why several analysts are looking to Tory Burch to be the next designer to go from the fashion runway to star of her own IPO.

Tory Burch, who gained high-end recognition for her ballet flats with interlocking Ts, last month settled a dispute with her ex-husband Chris Burch, resolving what was viewed as the last big obstacle to going public.

Bloomberg analysts estimate Tory Burch's market valuation may top $3.4 billion.

Existing stores are also seeking to tap upscale consumers.

Gap, operator of low-end Old Navy, midtier Gap and Banana Republic stores, announced the purchase of privately held luxury retailer Intermix for $130 million in cash on Thursday. That Gap's first acquisition in four years was of a high-end retailer underscored the growing industry interest in luxury goods.

Intermix sells posh brands like Herve Leger and Yves Saint Laurent at its 30 locations in the U.S. and Canada. A Veronica Beard tweed blazer retails for $795 and a Yigal Azrouel leather jacket costs more than $1,500.

While department stores overall did well over the holidays, high-end department store Nordstrom (JWN) stood out. The upscale retailer smashed December forecasts last week, reporting an 8.6% jump in same-store sales, more than double what analysts had been expecting.

Nordstrom is well known for its vast high-end shoe selections, including Jimmy Choo pumps for $665 and Tory Burch wedges for $265.

China's rapidly growing economy also has fueled burgeoning sales of upscale fashions, jewelry and cars.

"There is a romantic notion of European luxury goods in China," said Corinna Freedman, an analyst at Wedbush Securities. "The brands are sort of revered.

Although China's economy has slowed, many analysts think the country's taste for the pricier luxury goods will continue to grow.