The Coronavirus-Era Shopping Response to a Downturn: Trade Up | Kanebridge News
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The Coronavirus-Era Shopping Response to a Downturn: Trade Up

By Suzanne Kapner
Thu, Dec 17, 2020 6:13amGrey Clock 4 min

Shoppers have a new mantra this year: Treat yourself.

Stuck at home and spending far less on travel, experiences and dining out, consumers are trading up on everything from designer handbags to diamond jewellery, according to industry executives and market-research firms.

The splurging defies the norms of past economic downturns, when consumers traded down to less-expensive items. And it isn’t only the well-off taking part. Less-affluent shoppers are buying items like premium spaghetti sauce or salon-worthy shampoo that was previously out of reach or thought to be not worth the price before the coronavirus pandemic forced people to curtail activities and isolate.

Stephanie Moon bought a Chloé handbag on sale for around A$890 this summer as a reward for signing her first client to her newly launched consulting firm. The 38-year-old San Francisco resident said she doesn’t usually buy designer bags, but felt like she could afford one now.

“I’m saving so much money, because I’m not going anywhere or doing anything,” she said. “Normally, I’d treat myself to a night out with my girlfriends, but that wasn’t an option this year.”

Millions of Americans remain out of work, and jobless claims are at their highest level since September. Yet despite some signs of slowing growth in November, retail spending has been strong relative to the broader economic outlook, boosted by a surge in online shopping. The National Retail Federation predicts holiday sales will rise 3.6% to 5.2%. Shoppers have been loading up on Christmas decorations, which are in short supply, as they try to brighten dreary, pandemic days.

After years of watching consumers, especially young ones, shift their spending to experiences, retailers across the spectrum say they have noticed more splurging 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.

“Over the past few years, consumers have been making choices, ‘Do I take a trip to Rome or buy a handbag?’ ” said Marc Metrick, the chief executive officer of Saks Fifth Avenue. “This year, the decision has been eliminated.”

Mr Metrick said the biggest burst of demand is from shoppers who crave luxury products but can’t regularly afford them.

Neiman Marcus Chief Executive Geoffroy van Raemdonck said wealthy shoppers are buying more-expensive jewellery, shoes and handbags. “The same customer who would have bought one handbag last year is buying two this year, or is buying a more-expensive bag,” Mr. van Raemdonck said.

Neiman Marcus, which emerged from bankruptcy in September, has also attracted “entry-level” consumers who rarely, if ever, shopped with the luxury chain before Covid-19, he said. To appeal to them, it recently announced a partnership with payments company Affirm to offer instalment payments over six to 36 months at no extra charge.

NPD Group Inc. found that customers across various income levels, from those making less than $25,000 a year to those making more than $100,000 annually, are spending more on retail purchases than they did a year ago. Notably, for lower-income consumers, that spending didn’t dissipate after the stimulus checks ran out this summer.

“The growth rate in retail sales at the low end is higher than at the high end,” said Marshal Cohen, NPD’s chief industry adviser. “Consumers are gilt gifting, sending bigger, better gifts and rewarding themselves.”

Signet’s Jared chain is seeing the most growth at the highest price points, including items costing more than US$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 Nov. 1 through mid-December, compared with the same period a year ago. Over the same period, sales of 1.25-carat diamond stud earrings have climbed 40% compared with last year.

Mr Brace said sales in those categories are growing at a rate of two to four times Signet’s overall sales growth in the most recent quarter. The company also owns the Kay Jewelers, Zales and Piercing Pagoda chains.

“Women are looking for zoom-worthy jewellery,” Mr Brace said. “They are going bigger on diamond studs.” He added that one Signet customer in Colorado recently bought three special-edition watches that cost more than US$10,000 each. “It’s unusual for someone to buy three at one time,” he said.

Macy’s customers are buying more-expensive jewellery, handbags and sleepwear, with shoppers spending more on each item than they did on similar purchases in the past, according to a spokeswoman. At the company’s Bloomingdale’s chain, affluent customers are snapping up luxury products.

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

The strong demand has allowed some luxury brands to raise some prices, according to Erwan Rambourg, HSBC Holdings PLC’s global co-head of consumer and retail research. This spring, Louis Vuitton raised prices about 8% globally, while Chanel instituted a roughly 5% price increase, he said.

A Chanel spokesman said the brand, like most other luxury labels, regularly adjusts prices to reflect changes in production costs, raw-material prices and currency fluctuations, and also to help avoid price discrepancies between countries. Louis Vuitton declined to comment.

“Since Covid hit, you’ve had a tendency from consumers to buy less, but buy better,” Mr Rambourg said. “Unlike after 9/11, which made spending on luxury seem vulgar and inappropriate, today there is no stigma.”

Sarah Johnson has been buying Givenchy lipstick, Chanel blush, and Yves Saint Laurent eye shadow, often spending $200 in one shot. Before the pandemic, the 52-year-old New York City resident, who works in public relations, would have been satisfied with drugstore brands.

Now she is considering buying a designer handbag as a holiday gift for herself. “I would never have bought a designer bag in the past, but maybe I’ll use the money I saved for vacation to buy that Balenciaga bag I’ve always wanted,” she said, referring to the brand’s bags, which cost upward of $1,000.

Shoppers of all incomes are also trading up in everyday purchases like bottled water and spaghetti sauce, according to IRI, a market research firm that tracks $1.1 trillion in consumer-products spending.

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

Roy Cohen says he is saving $2,000 a month since he stopped paying rent on his Manhattan office in June. The 65-year-old career counsellor cancelled his vacation and is dining out less.

Instead, the East Hampton, N.Y., resident says he is donating more to charity and splurging on things like premium olive oil. In the past, he said he would have bought the generic version at Costco Wholesale Corp.

“I’m very value-oriented,” Mr Cohen said. “Before, I never would have thought expensive olive oil was worth the money.”



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Vacationers scratching their travel itch this season are sending prices through the roof. Here’s how some are making trade-offs.

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Thu, May 25, 2023 3 min

Capri Coffer socks away $600 a month to help fund her travels. The Atlanta health-insurance account executive and her husband couldn’t justify a family vacation to the Dominican Republic this summer, though, given what she calls “astronomical” plane ticket prices of $800 each.

The price was too high for younger family members, even with Coffer defraying some of the costs.

Instead, the family of six will pile into a rented minivan come August and drive to Hilton Head Island, S.C., where Coffer booked a beach house for $650 a night. Her budget excluding food for the two-night trip is about $1,600, compared with the $6,000 price she was quoted for a three-night trip to Punta Cana.

“That way, everyone can still be together and we can still have that family time,” she says.

With hotel prices and airfares stubbornly high as the 2023 travel rush continues—and overall inflation squeezing household budgets—this summer is shaping up as the season of travel trade-offs for many of us.

Average daily hotel rates in the top 25 U.S. markets topped $180 year-to-date through April, increasing 9.9% from a year ago and 15.6% from 2019, according to hospitality-data firm STR.

Online travel sites report more steep increases for summer ticket prices, with Kayak pegging the increase at 35% based on traveler searches. (Perhaps there is no more solid evidence of higher ticket prices than airline executives’ repeated gushing about strong demand, which gives them pricing power.)

The high prices and economic concerns don’t mean we’ll all be bunking in hostels and flying Spirit Airlines with no luggage. Travellers who aren’t going all-out are compromising in a variety of ways to keep the summer vacation tradition alive, travel agents and analysts say.

“They’re still out there and traveling despite some pretty real economic headwinds,” says Mike Daher, Deloitte’s U.S. transportation, hospitality and services leader. “They’re just being more creative in how they spend their limited dollars.”

For some, that means a cheaper hotel. Hotels.com says global search interest in three-star hotels is up more than 20% globally. Booking app HotelTonight says nearly one in three bookings in the first quarter were for “basic” hotels, compared with 27% in the same period in 2019.

For other travellers, the trade-offs include a shorter trip, a different destination, passing on premium seat upgrades on full-service airlines or switching to no-frills airlines. Budget-airline executives have said on earnings calls that they see evidence of travellers trading down.

Deloitte’s 2023 summer travel survey, released Tuesday, found that average spending on “marquee” trips this year is expected to decline to $2,930 from $3,320 a year ago. Tighter budgets are a factor, he says.

Too much demand

Wendy Marley is no economics teacher, but says she’s spent a lot of time this year refreshing clients on the basics of supply and demand.

The AAA travel adviser, who works in the Boston area, says the lesson comes up every time a traveler with a set budget requests help planning a dreamy summer vacation in Europe.

“They’re just having complete sticker shock,” she says.

Marley has become a pro at Plan B destinations for this summer.

For one client celebrating a 25th wedding anniversary with a budget of $10,000 to $12,000 for a five-star June trip, she switched their attention from the pricey French Riviera or Amalfi Coast to a luxury resort on the Caribbean island of St. Barts.

To Yellowstone fans dismayed at ticket prices into Jackson, Wyo., and three-star lodges going for six-star prices, she recommends other national parks within driving distance of Massachusetts, including Acadia National Park in Maine.

For clients who love the all-inclusive nature of cruising but don’t want to shell out for plane tickets to Florida, she’s been booking cruises out of New York and New Jersey.

Not all of Marley’s clients are tweaking their plans this summer.

Michael McParland, a 78-year-old consultant in Needham, Mass., and his wife are treating their family to a luxury three-week Ireland getaway. They are flying business class on Aer Lingus and touring with Adventures by Disney. They initially booked the trip for 2020, so nothing was going to stand in the way this year.

McParland is most excited to take his teen grandsons up the mountain in Northern Ireland where his father tended sheep.

“We decided a number of years ago to give our grandsons memories,” he says. “Money is money. They don’t remember you for that.”

Fare first, then destination

Chima Enwere, a 28-year old piano teacher in Fayetteville, N.C., is also headed to the U.K., but not by design.

Enwere, who fell in love with Europe on trips the past few years, let airline ticket prices dictate his destination this summer to save money.

He was having a hard time finding reasonable flights out of Raleigh-Durham, N.C., so he asked for ideas in a Facebook travel group. One traveler found a round-trip flight on Delta to Scotland for $900 in late July with reasonable connections.

He was budgeting $1,500 for the entire trip—he stays in hostels to save money—but says he will have to spend more given the pricier-than-expected plane ticket.

“I saw that it was less than four digits and I just immediately booked it without even asking questions,” he says.

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