Inflation, Recession Fears Have Some Holiday Shoppers Trading Down
Consumers are swapping everything from Lululemon leggings to Natori underwear for cheaper alternatives
4 min
Many shoppers are trading down to less expensive clothing and accessories—swapping Lululemon leggings for Uniqlo and expensive lingerie for Target bras and panties—as inflation eats into their disposable income and a rocky stock market erodes their wealth.
The downshift raises concerns about the coming holiday season, historically a time when many people splurge on designer handbags, fine jewellery and other extravagant purchases for themselves or loved ones. Investors will get updates on shopping attitudes this week when Ralph Lauren Corp., Michael Kors parent Capri Holdings Ltd. and Tapestry Inc., the owner of Coach, report their latest results.
“I’m skipping the splurge this year,” said Kate Cheng, who owns a jewellery store in San Francisco. Ms. Cheng said she normally treats herself to a designer handbag or another luxury item during the holidays, but is holding off this year over concerns about a looming recession.
She has noticed a shift in her customers’ buying habits in recent months to less-expensive silver jewellery from gold. That has prompted her to curtail her own spending. She switched to Uniqlo leggings instead of products from Lululemon, which cost about twice as much. She also canceled a trip to Maui, which would have cost about $4,000, and instead plans to take a road trip to New Mexico for about half the price.
Seventy-two percent of consumers plan to look for less expensive alternatives this holiday season as a result of inflation, according to a survey of 2,200 U.S. adults by Morning Consult, a research company.
With inflation at a four-decade high, consumers have been trading down to less-expensive groceries and other necessities for the better part of this year. Now, with the stock-market plunge of recent months further eroding the wealth of middle- and higher-income households, the penny-pinching is extending to more discretionary purchases.
Holiday retail sales in November and December, excluding spending on cars, gasoline and restaurants, is slated to increase between 6% and 8% from a year ago, after a 13.5% jump last year, according to the National Retail Federation, a trade group. The labor market is strong, and NRF expects some consumers will tap their savings and credit cards to deal with price increases.
U.S. consumers slowed their spending on luxury goods in recent months, according to credit-card data from Mastercard Inc., Citigroup Inc. and BofA Securities Inc. Spending over the summer and into September fell from the same period a year earlier, after posting double-digit percentage gains for most of the past two years.
Thomas Chauvet, who heads Citi’s Europe luxury goods equity research, said the slowdown was driven by a deceleration in transaction values, suggesting that even affluent consumers are trading down. According to BofA Securities, middle-income consumers, those making $50,000 to $125,000, slowed their spending the most.
Marc Metrick, chief executive of Saks, the online platform of the Saks Fifth Avenue brand, said customers with household incomes of about $100,000 are still spending but at a slower rate. These customers spent 20% more at Saks in recent months compared with the same period in 2021, but that is down from the 40% increase during the first six months of this year. As a result, Saks is selling fewer wallets, belts and other items bought by entry-level shoppers. “They are the canary in the coal mine for sentiment at that aspirational level,” Mr. Metrick said.
Jean-Marc Duplaix, finance chief for Gucci parent Kering SA, told investors in October that entry-level shoppers are buying less. “Among certain categories of products, which are maybe more appealing to a more aspirational clientele, there is some more pressure,” he said.
The slowdown has also hit American jeweller Tiffany, according to its parent, LVMH Moët Hennessy Louis Vuitton SA. “The business in the U.S. is a bit less strong than it used to be,” but it is still growing at a double-digit percentage, Jean-Jacques Guiony, LVMH’s finance chief, told analysts in early October.
Kering and LVMH executives said some U.S. shoppers shifted spending to Europe given the strength of the U.S. dollar. LVMH said its overall business with American shoppers in the third quarter was similar to the first and second quarters of this year.
Mr. Chauvet said the U.S. slowdown in Citi’s data, which started in May, wasn’t the result of purchases shifting overseas because it captures spending by U.S. consumers regardless of their location.
Luxury brands have been among the most aggressive in raising prices. HSBC estimates the sector raised prices around 5% since April, on top of an 8% increase starting in September 2021.
David Hampshere, who owns a real-estate investment company, switched from Ralph Lauren button-down shirts to Costco Wholesale Corp.’s Kirkland brand earlier this year. “With the stock market tanking and mortgage rates rising, I’ve definitely been cutting my expenses,” said Mr. Hampshere, who is 55 years old and lives in Freeport, Fla.
Mr. Hampshere recently returned a pair of $300 noise-canceling headphones and is instead using an old pair that he already owned. He plans to give friends and family $30 gift cards this holiday season rather than the $100 cards he doled out last year.
Stacie Krajchir, 54, a publicist who lives in Los Angeles, has stopped buying Natori underwear and now gets her bras and panties at Target. “I don’t need a $110 bra,” said Ms. Krajchir. “A $12 bra is good enough.”
She recently returned a $300 blouse she bought at Nordstrom. “I can buy a blouse, jeans and a dress at Zara, and it still won’t add up to $300,” Ms. Krajchir said. She plans to trade down in her gift-giving, too. She is getting her sister one gift this year, instead of the five gifts she normally gives her.
Brett Glickman started swapping lower-priced items for high-end ones in her San Francisco boutique after she noticed consumers becoming more frugal in recent months. She is pulling $198 French silk nightgowns off the shelves and replacing them with $24 sweaters and $65 baby-doll dresses. “I had to flip about 30% of my inventory to less- expensive prices,” the former Levi Strauss & Co. executive said.
JCPenney and Kohl’s Corp. said they are seeing consumers switch to private-label brands, which tend to be more affordable than national brands. “They were definitely trading down,” Jill Timm, Kohl’s finance chief said at a conference in September, referring to Kohl’s shoppers.
Vered DeLeeuw, of Washington, D.C., used to buy most of her clothes at Bloomingdale’s, but has switched to Nordstrom Rack for its bargain prices. “Bloomingdale’s was my mother ship, but it is too expensive now,” the 51-year-old food blogger said.
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Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Couples find that lab-grown diamonds make it cheaper to get engaged or upgrade to a bigger ring. But there are rocky moments.
4 min
Wedding planner Sterling Boulet has some advice for brides-to-be regarding lab-grown diamonds, which cost a fraction of the natural ones.
“If you’re trying to get your man to propose, they’ll propose faster if you offer this as an option,” says Boulet, of Raleigh, N.C. Recently, she adds, a friend’s fiancé “thanked me the next three times I saw him” for telling him about the cheaper lab-made option.
Man-made diamonds are catching on, despite some lingering stigma. This year was the first time that sales of lab-made and natural mined loose diamonds, primarily used as center stones in engagement rings, were split evenly, according to data from Tenoris, a jewellery and diamond trend-analytics company.
The rise of lab-made stones, however, is bringing up quirks alongside the perks. Now that blingier engagement rings—above two or three carats—are more affordable, more people are dealing with the peculiarities of wearing rather large rocks.
Esther Hare, a 5-foot-11-inch former triathlete, sought out a 4.5-carat lab-made oval-shaped diamond to fit her larger hands as a part of her vow renewal in Hawaii last year. It was a far cry from the half-carat ring her husband proposed with more than 25 years ago and the 1.5-carat upgrade they purchased 10 years ago. Hare, 50, who lives in San Jose, Calif., and works in high tech, chose a $40,000 lab-made diamond because “it’s nuts” to have to spend $100,000 on a natural stone. “It had to be big—that was my vision,” she says.
But the size of the ring has made it less practical at times. She doesn’t wear it for athletic training and swaps in her wedding band instead. And she is careful to leave it at home when traveling. “A lot of times I won’t take it on vacation because it’s just a monster,” she says.
The average retail price for a one-carat lab-made loose diamond decreased to $1,426 this year from $3,039 in 2020, according to the Tenoris data. Similar-sized loose natural diamonds cost $5,426 this year, compared with $4,943 in 2020.
Lab-made diamonds have essentially the same chemical makeup as natural ones, and look the same, unless viewed through sophisticated equipment that gauges the characteristics of emitted light.
At Ritani, an online jewellery retailer, lab-made diamond sales make up about 70% of the diamonds sold, up from roughly 30% two years ago, says Juliet Gomes, head of customer service at the company, based in White Plains, N.Y.
Ritani sometimes records videos of the lab-diamonds pinging when exposed to a “diamond tester,” a tool that judges authenticity, to show customers that the man-made rocks behave the same as natural ones. “We definitely have some deep conversations with them,” Gomes says.
Not all gem dealers are rolling with these stones.
Philadelphia jeweller Steven Singer only stocks the natural stuff in his store and is planning a February campaign to give about 1,000 one-carat lab-made diamonds away free to prove they are “worthless.” Anyone can sign up online and get one in the mail; even shipping is free. “I’m not selling Frankensteins that were built in a lab,” Singer says.
Some brides are turned off by the larger bling now allowed by the lower prices.When her now-husband proposed with a two-carat lab-grown engagement ring, Tiffany Buchert, 40, was excited about the prospect of marriage—but not about the size of the diamond, which she says struck her as “costume jewellery-ish.”
“I said yes in the moment, of course, I didn’t want it to be weird,” says the physician assistant from West Chester, Pa.
But within weeks, she says, she fessed up, telling her fiancé: “I think I hate this ring.”
The couple returned it and then bought a one-carat natural diamond for more than double the price.
When Boulet, the wedding planner in Raleigh, got engaged herself, she was over the moon when her fiancé proposed with a 2.3 carat lab-made diamond ring. “It’s very shiny, we were almost worried it was too shiny and was going to look fake,” she says.
It doesn’t, which presents another issue—looking like someone who really shelled out for jewellery. Boulet will occasionally volunteer that her diamond ring came from a lab.
“I don’t want people to think I’m putting on airs, or trying to be flashier than I am,” she says.
For Daniel Teoh, a 36-year-old software engineer outside of Detroit, buying a cheaper lab-made diamond for his fiancée meant extra room in his $30,000 ring budget.
Instead of a bigger ring, he got her something they could both enjoy. During a walk while on an annual ski trip to South Lake Tahoe, Calif., Teoh popped the question and handed his now-wife a handmade wooden box that included a 2.5-carat lab-made diamond ring—and a car key.
She put on the ring, celebrated with both of their sisters and a friend, who was the unofficial photographer of the happy event, and then they drove back to the house. There, she saw a 1965 Mustang GT coupe in Wimbledon white with red stripes and a bow on top.
Looking back, Teoh says, it was still the diamond that made the big first impression.
“It wasn’t until like 15 minutes later she was like ‘so, what’s with this key?’” he adds.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
