The richest Americans will lead the way in holiday spending again this year.
At the beginning of the Great Recession, luxury retail fell hard – some brands and product-categories saw declines of 30 to 40 percent, says retail analyst David Schick at Stifel Nicolaus. That compared to declines under 5 percent for mass-market retail.
But after the recession, luxury retail rebounded sooner and stronger than the rest of the market. And that strength has continued through 2014. Management consultancy Bain & Company predicts the global luxury market will have grown by 5 percent in 2014; the increase will be 6 percent in the U.S. – significantly higher than mainstream U.S. retail.
“At the higher end of the income spectrum, we have seen financial assets helping the consumer in a way that isn’t helping other quintiles of income,” says Schick. “And wage growth is the same story.” That increased wealth at the top will likely help luxury brands such as Tiffany & Co.
Schick is quick to point out, though, that middle-income Americans are also doing better this year, with paychecks trending higher, unemployment down, and gas prices falling hard.
These consumers might now feel more comfortable splurging on a high-end brand—a Kate Spade handbag or Coach wallet.
“It’s not just the 1 percent that are carrying along high-end retailers,” says Kit Yarrow, professor emeritus of psychology at Golden Gate University and author of ‘Decoding the New Consumer Mind.’ “Obviously, the high-end retailers aren’t going to be doing well without them. But it’s also the huge influx of money coming from Chinese consumers that are visiting the U.S., and other nationalities. And also middle-class and upper-middle-class consumers who are stretching, because they perceive the value of those products to be worth it.”
Yarrow conducts “shop-alongs” with American consumers, including those in the six-figure income bracket. Stocks, home prices, and income have all combined to make these households even wealthier than they were before the recession.
But while they can afford to spend on luxury goods, she finds they don’t want to flaunt their money.
“They understand that there’s sort of an anti-wealth sentiment,” says Yarrow. “They don’t want to be conspicuous in their consumption. They don’t want other people to distrust them or feel separated from them. One woman I interviewed was embarrassed to say in front of other people that she’d paid full-price for a product, because she thought they might find that to be offensive.”
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