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the purchasing behavior of rich Americans a sign of a recession?

von

Bloomberg

Ubersetzt von

Clementine Martin

Veröffentlicht am

22.11.2023

The richest Americans are cutting back on spending ahead of Black Friday, a worrying indicator for an economy that depends on its affluent consumers to stave off a recession.

Nordstrom New York

In the three months leading up to the crucial holiday season, several stores targeting upper-middle-class customers (like Apple, Coach and Nordstrom) saw the sharpest sales declines in two years, according to an exclusive analysis based on data from Bloomberg Second Measure (1). This bad patch does not spare the most efficient shopping centers in wealthy neighborhoods, even if total sales figures are increasing.

Despite record interest rates and soaring inflation, the upper middle class “was behind much of the spending above expectations,” says Kayla Bruun, senior economist at Morning Consult, a research and consultancy firm. of study. But today, even people from households with annual incomes above $100,000 a year are starting to tighten their belts, she says.

Affluent consumers often have an outsized impact on consumer spending curves: They have more money to spend in good times but are also quicker than the rich to pull back when economic pressure is felt. This blow to brands, retailers and malls that cater to wealthy Americans could signal weakness in the entire U.S. economy.

To assess the spending of the wealthiest households, Bloomberg created a wealth index (2) covering 30 major retailers and brands in ten categories (including clothing, jewelry and electronics) with average baskets higher than the average of those in their category.

Accelerating sales decline

For all companies in the index, the average basket in October was over $100, except for makeup and skincare brands Sephora and L’Occitane. Some of these retailers, including Apple ($267) and West Elm ($292), were well above. Most of them are popular holiday shopping destinations, like Best Buy and Williams Sonoma.

Retailers and brands in the index have seen a decline in sales since January that has recently accelerated, according to Bloomberg Second Measure, which anonymously tracks credit and debit card transactions in the United States. For the three months from August to October, revenues fell for 70% of the companies studied. The median sales decline (3) was 14%, the worst result in two years. The Ugg brand, which was named this year by Vogue as the “hottest new shoe” label, is one of those that defies the statistics.

Julie Robinson-Jasper, 54, lives in Seattle. She and her husband earn more than $100,000 a year, but she already plans to cut back on her holiday spending. She doesn’t want to spend more than $600 on gifts for her two children, the same amount as the previous three years, but with much less purchasing power due to rapid inflation. The family generally eats at home to avoid spending more in restaurants, whose prices have increased, and turns to the second-hand market for clothing.

“We don’t want to be left with nothing if something happens, like losing a job or getting sick,” admits Julie Robinson-Jasper, who works for a nursery.

Traffic at malls in wealthy neighborhoods is also starting to decline for the first time since the pandemic, according to a Placer.ai mobility data study (4) of major malls in 25 states. In October, 21 of the 25 malls analyzed (ranging from Birmingham, Alabama, to Garden City, New York, to Bellevue, Washington) experienced a drop in traffic. Total visits fell 3.3% over the past three-month period, the worst performance since the start of 2021.

This bad trend is also observed in areas whose population increased after the pandemic. In the suburbs of booming Houston, where the average household income is 20% higher than in the rest of Texas, the Baybrook mall has seen traffic decline by 660,000 visits this year, or about 6%, according to Placer .ai, which analyzes cell phone location data. (5)

Sephora store

“People are just window shopping right now,” laments Bre Clinton, assistant manager at The Body Shop at Baybrook Mall. “They leave with few purchases.”

Bre Clinton (25) sees the holiday season as having started slowly, with cheaper items like miniature versions of body scrubs favored over pricier options. To attract customers, she explains, the store offers more lotion samples.

A spokeswoman for Brookfield Properties, which owns the Baybrook shopping center, said the mall’s retail sales were up for the 12 months through September and that the company was “delighted” with the move. performance.

The slowdown at malls and at retailers targeting the upper-middle class contrasts with figures for more popular brands, which have seen overall annual growth since 2020, during the pandemic-driven economic shutdown. During lockdown, affluent shoppers spent heavily on home decor and wardrobes. But once the pandemic ended, spending shifted to services and experiences like travel, dining out and Taylor Swift concerts.

Morale at half mast

Years of high inflation and rising interest rates are weighing on the morale of some buyers. The job market remains solid for the moment in the United States, but real incomes have experienced periods of decline. Certain categories of the upper middle class have suffered more than others.

The median income of households where at least one member has a college degree fell 4.9% to $118,000 in 2022, twice as much as the decline recorded across all income brackets, according to Census Bureau data. Only in recent months have wages been revalued and indexed to inflation, starting to rise again.

The purchasing behavior of the upper middle class often reflects its members’ perception of their income, and their assessment of their wealth is largely linked to the value of real estate. In several major markets, property prices have started to fall.

The richest Americans are increasingly worried about their jobs and prefer to pay off their debts after spending big during the summer vacations, says Kayla Bruun.

Consumers are already starting to delay purchasing expensive products and services like washing machines, Botox injections or even orthodontics. Purchasing on credit has become more expensive since the Federal Reserve significantly raised interest rates to try to curb inflation, which had consequences for sales of Harley-Davidson and Tesla.

Customers are putting “certain expenses aside,” notes Edel O’Sullivan, sales director of Harley-Davidson interviewed by analysts last month. “In 2023, they will not indulge in this kind of pleasure purchase.”

Revolve Group, an e-commerce clothing site with an average basket of about $300, warned of possible trouble ahead this month in an interview given by its co-CEO Mike Karanikolas to economists.

“Aspirational luxury consumers who had money to spend 18 months ago no longer have the same capacity today,” he concluded.

(1) Bloomberg Second Measure data is based on recorded U.S. consumer debit/credit card transactions. They exclude cash purchases, gift cards and certain deferred payment services. Data from brands like Nike, Apple and Coach was obtained from their sales departments (stores and e-commerce). Sales figures from wholesale partners, such as department stores, are not included in brand data.

(2) Bloomberg selected 30 major retailers and brands in ten categories (clothing, footwear, furniture, decoration, jewelry, eyewear, electronic devices, makeup, handbags and department stores) to analyze them. They were chosen due to the large number of transactions observed via Second Measure data and an average basket value which is among the highest in their category. (Except for L’Occitane and Sephora, all companies studied have an average basket value above $100.) The 30 companies in question are: Abercrombie & Fitch, Anthropologie, Apple, Athleta, Best Buy, Birkenstock, Bloomingdale’s, Coach, Crate & Barrel, Dillard’s, Hoka, J.Crew, Jared the Galleria of Jewelry, Kate Spade, LLBean, L’Occitane, Lululemon, Michael Kors, Nike, Nordstrom, Pandora, Patagonia, Polo Ralph Lauren, Pottery Barn, Sephora, Sunglass Hut, Ugg, Warby Parker, West Elm and Williams-Sonoma.

(3) To obtain the sales change figure, Bloomberg first calculated the average sales for the current quarter for each company in order to exclude results from the most outlying months. Bloomberg then calculated the monthly year-over-year changes for the quarterly averages. The result for October 2023 is based on the average of sales in August, September and October, compared to the same three months last year. To compare trends across all retailers, Bloomberg used the year-over-year median for all 30 companies.

(4) Bloomberg selected one mall in each of the 25 states with visitors with a median annual household income of at least 110% of the median in their state in 2019. These malls are also among the five malls most visited in each state. The states are: Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan , Minnesota, Nevada, New York, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin.

(5) Placer.ai uses anonymous mobile data to estimate traffic.

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