The coronavirus era response to a downturn: trade-in

The squander defies the norms of past economic downturns, when consumers switched to less expensive items. And not only the wealthy participate. Less affluent buyers buy items such as premium spaghetti sauce or salon-grade shampoo that were previously out of reach or thought not to be worth the price before the coronavirus pandemic forced people to restrict and isolate activities.

Stephanie Moon bought a Chloé handbag on sale this summer for $ 600 as a reward for signing her first client at her newly founded consulting firm. The 38-year-old San Francisco resident said she doesn’t usually buy designer bags, but felt she could afford one now.

“I’m saving so much money because I’m not going anywhere and doing nothing,” she said. “Normally I would treat myself to a night out with my friends, but that wasn’t an option this year.”

Millions of Americans are still out of work, and jobless claims are at their highest levels since September. Despite some signs of a slowdown in growth in November, retail spending was strong compared to the broader economic outlook, boosted by a surge in online shopping. The National Retail Federation predicts sales will increase 3.6% to 5.2% during the holiday season. Shoppers load up on Christmas decorations, which are sparse, as they try to brighten gloomy, pandemic days.

After years of watching consumers, especially young people, shift their spending to experiences, retailers across the spectrum say they’ve spent more money on things from luxury chains like Neiman Marcus Group Inc. and Saks Fifth Avenue to Macy’s. Inc.

and Signet Jewelers Ltd.

, owner of the Jared chain.

“In recent years, consumers have made choices: ‘Am I going to Rome or buying a handbag?’ Said Marc Metrick, the CEO of Saks Fifth Avenue. “This year the decision has been eliminated.”

Mr. Metrick said the biggest demand comes from shoppers who are looking for luxury products but who cannot afford to pay regularly.

Neiman Marcus Chief Executive Geoffroy van Raemdonck said wealthy shoppers buy more expensive jewelry, shoes and handbags. “The same customer who would have bought one handbag last year will buy two this year, or will buy a more expensive one,” said Van Raemdonck.

Neiman Marcus, who came out of bankruptcy in September, has also attracted “entry-level” consumers who rarely, if ever, shopped at the luxury chain before Covid-19, he said. To appeal to them, it recently announced a partnership with payment company Affirm to offer six to 36-month installments at no additional cost.

NPD Group Inc. found that customers with varying income levels, from those who earn less than $ 25,000 a year to those who earn more than $ 100,000 a year, spend more on retail purchases than a year ago. For consumers with lower incomes in particular, that expenditure did not disappear after stimulus controls ran out this summer.

“The growth rate of retail sales at the bottom is higher than at the top,” said Marshal Cohen, NPD’s chief advisor. “Consumers give gold-plated gifts, send bigger, better gifts and reward themselves.”

Signet’s Jared chain has seen the most growth at the highest price, including items costing more than $ 5,000, according to Bill Brace, Signet’s chief marketing officer. At Jared, sales of 2-carat loose diamonds and luxury watches are up 30% from November 1 to mid-December, compared to the same period a year ago. In the same period, sales of 1.25 carat diamond stud earrings are up 40% compared to last year.

Mr. Brace said sales in these categories are growing two to four times faster than Signet’s overall sales growth in the most recent quarter. The company also owns the Kay Jewelers, Zales, and Piercing Pagoda necklaces.

“Women are looking for jewelry so suitable for the eye,” said Mr. Brace. “They get bigger on diamond studs.” He added that a Signet customer in Colorado recently purchased three specialty watches costing more than $ 10,000 each. “It’s unusual for someone to buy three at a time,” he said.

Macy’s customers buy more expensive jewelry, handbags and nightwear, with customers spending more on each item than in the past on similar purchases, a spokeswoman said. In the company’s Bloomingdale chain, affluent shoppers buy luxury products.

“It’s not just because people buy the snob clothes,” said Tony Spring, Bloomingdale’s CEO. “People realize you can have really nice things that don’t come close to what experiences cost.”

Strong demand has allowed some luxury brands to raise some prices, said Erwan Rambourg, HSBC Holdings PLC’s global co-head of consumer and retail research. This spring, Louis Vuitton increased prices worldwide by about 8%, while Chanel pushed for a price increase of about 5%, he said.

A Chanel spokesperson said the brand, like most other luxury labels, regularly adjusts prices to reflect changes in production costs, commodity prices, and currency fluctuations, as well as to help prevent price differences between countries. Louis Vuitton declined to comment.

“Since Covid hit, you have a tendency for consumers to buy less, but buy better,” said Mr. Rambourg. “Unlike after 9/11, when spending on luxury seemed vulgar and inappropriate, today there is no stigma.”

Sarah Johnson has bought Givenchy lipstick, Chanel blush, and Yves Saint Laurent eyeshadow and often spends $ 200 all at once. Before the pandemic, the 52-year-old New York City resident who works in public relations is said to have been content with drugstore brands.

Now she is considering buying a designer handbag as a Christmas present for herself. “I would never have bought a designer bag in the past, but I might use the money I saved up for the holidays to buy that Balenciaga bag I’ve always wanted,” she said, referring to the brand’s bags. , which is more than $ 1,000.

According to IRI, a market research firm that tracks $ 1.1 trillion in consumer product spending, buyers of all incomes also trade in everyday purchases, such as bottled water and spaghetti sauce.

“We expected low-income shoppers to buy more value brands,” said Krishnakumar Davey, president of IRI’s Strategic Analytics practice. “But they buy more expensive products.”

Roy Cohen says he’s been saving $ 2,000 a month since he stopped paying rent for his Manhattan office in June. The 65-year-old career advisor has canceled his vacation and dines out less.

Instead, the resident of East Hampton, NY, says he is donating more to charity and spending money on things like premium olive oil. In the past, he said he would have bought the generic version from Costco Wholesale Corp.

“I am very value oriented,” said Mr. Cohen. “Before, I never thought expensive olive oil was worth the money.”

Write to Suzanne Kapner at [email protected]