NEW YORK (The Street) -- Mid-level luxury brands are feeling the pain of a tentative consumer market. With the strong dollar deterring international shoppers, aspirational brands like Ralph Lauren (RL), Michael Kors (KORS) and Coach (COH) are struggling to attract shoppers.
So are the mid-level luxury brands in crisis or have they just hit a temporary speed bump?
Mid-level luxury will bounce back, according to Cowen and Company's Senior Retail Analyst Oliver Chen. Handbag profits have suffered from end-of-season promotional sell-offs, but Chen remains bullish on mid-level brands like Kate Spade (KATE) and Tiffany's (TIF), which he said have plenty of growth potential.
Target (TGT), said Chen, is a retail winner, driven by strong execution in signature categories and impressive digital growth, despite its online hacking scandal last year.
For investors looking to give their portfolio a makeover, Chen suggested the beauty sector as one to watch, with a "nice growth rate of 8%-10%."
Apparel, on the other hand, is a sector where investors should proceed with caution, the analyst noted. While it's still growing at 3%, Chen pointed out that the group is heavily discounted in a tough climate.
A more worrying trend for investors could perhaps be that the mid-level luxury brands' key customers are becoming increasingly frugal, according to some analysts.
Marketing specialist Pam Danziger identified a group she calls "HENRYS" (High Earners Not Yet Rich) as cutting back on their retail habits to invest more in rent, cell phones and time-saving services. According to Danziger, these shoppers are aged between 25 and 35 and make up around 18% of households.