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

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.”

They call themselves TikTok refugees—and the app they are fleeing to is a lot more Chinese than the video-sharing app whose U.S. fate now hangs in the balance.

After Supreme Court justices Friday seemed inclined to let stand a law that would shut down TikTok in the U.S., the Chinese social-media platform Xiaohongshu , translated in English as Little Red Book, has received a flood of American TikTok users. They are looking for a sanctuary or a way to protest the potentially imminent TikTok ban—never mind that they don’t speak Chinese.

Charlotte Silverstein, a 32-year-old publicist in Los Angeles, downloaded Xiaohongshu on Sunday night after seeing videos on TikTok about migrating to the app, which Americans dubbed “RedNote.” She described the move as a “last act of defiance” in her frustration about the potential TikTok ban.

“Everyone has been super welcoming and sweet,” said Silverstein, who has made three posts so far. “I love the sense of community that I’m seeing already.”

By Monday, TikTok refugees had pushed Xiaohongshu to the top of the free-app chart on Apple ’s App Store.

“I’m really nervous to be on this app, but I also find it to be really exciting and thrilling that we’re all doing this,” one new Xiaohongshu user said in a video clip on Sunday. “I’m sad that TikTok might actually go, but if this is where we’re gonna be hanging out, welcome to my page!” Within a day, the video had more than 3,000 comments and 6,000 likes. And the user had amassed 24,000 followers.

Neither Xiaohongshu nor TikTok responded to requests for comment.

The flow of refugees, while serving as a symbolic dissent against TikTok’s possible shutdown, doesn’t mean Xiaohongshu can easily serve as a replacement for Americans. TikTok says it has 170 million users in the U.S., and it has drawn many creators who take advantage of the app’s features to advertise and sell their products.

Most of the content on Xiaohongshu is in Chinese and the app doesn’t have a simple way to auto-translate the posts into English.

At a time of a strained U.S.-China relationship, some new Chinese-American friendships are budding on an app that until now has had few international users.

“I like that two countries are coming together,” said Sarah Grathwohl, a 32-year-old marketing manager in Seattle, who made a Xiaohongshu account on Sunday night. “We’re bonding over this experience.”

Granthwohl doesn’t speak Chinese, so she has been using Google Translate for help. She said she isn’t concerned about data privacy and would rather try a new Chinese app than shift her screentime to Instagram Reels.

Another opportunity for bonding was a photo of English practice questions from a Chinese textbook, with the caption, “American please.” American Xiaohongshu users helped answer the questions in the comments, receiving a “thank u Honey,” from the person who posted the questions.

By Monday evening, there have been more than 72,000 posts with the hashtag #tiktokrefugee on Xiaohongshu, racking up some 34 million views.

In an English-language post titled “Welcome TikTok refugees,” posted by a Shanghai-based Xiaohongshu user, an American user responded in Chinese with a cat photo and the words, “Thank you for your warm welcome. Everyone is so cute. My cat says thanks, too.” The user added, “I hope this is the correct translation.”

Some Chinese users are also using the livestreaming function to invite TikTok migrants to chat. One chat room hosted by a Chinese English tutor had more than 179,900 visits with several Americans exchanging cultural views with Chinese users.

ByteDance-owned TikTok isn’t available in China but has a Chinese sister app, Douyin. American users can’t download Douyin, though; unlike Xiaohongshu, it is only accessible from Chinese app stores.

On Xiaohongshu, Chinese users have been sharing tutorials and tips in English for American users on how to use the app. Meanwhile, on TikTok, video clips have also multiplied over the past two days teaching users the correct pronunciation of Xiaohongshu—shau-hong-SHOO—and its culture.

Xiaohongshu may be new to most Americans, but in China, it is one of the most-used social-media apps. Backed by investors like Chinese tech giants Tencent Holdings and Alibaba Group , Xiaohongshu is perhaps best described as a Chinese mix of Instagram and Reddit and its users increasingly treat it as a search engine for practical information.

Despite its Little Red Book name, Xiaohongshu has little in common with the compilation of Mao Zedong ’s political writings and speeches. In fact, the app aspires to be a guidebook about anything but politics.

Conceived as a shopping guide for affluent urbanites in 2013, Xiaohongshu has morphed into a one-stop shop for lifestyle and shopping recommendations. Every day, its more than 300 million users, who skew toward educated young women, create, share and search for posts about anything from makeup tutorials to career-development lessons, game strategies or camping skills.

Over the years, Xiaohongshu users have developed a punchy writing style, with posts accompanied by images and videos for an Instagram feel.

Chinese social-media platforms are required to watch political content closely. Xiaohongshu’s focus on lifestyle content, eschewing anything that might seem political, makes it less of a regulatory target than a site like Weibo , which in 2021 was fined at least $2.2 million by China’s cyberspace watchdog for disseminating “illegal information.”

“I don’t expect to read news or discussion of serious issues on Xiaohongshu,” said Lin Ying, a 26-year-old game designer in Beijing.

The American frenzy over a Chinese app is the reverse of a migration in recent years by Chinese social-media users seeking refuge from censorship on Western platforms , such as X, formerly known as Twitter, or, more recently, BlueSky.

Just like TikTok users who turn to the app for fun, Xiaohongshu users also seek entertainment through livestreams and short video clips as well as photos and text-posts on the platform.

Xiaohongshu had roughly 1.3 million U.S. mobile users in December, according to market-intelligence firm Sensor Tower, which estimates that U.S. downloads of the app in the week ending Sunday almost tripled compared with the week before.

Sensor Tower data indicates that Xiaohongshu became the top-ranked social-networking and overall free app on Apple’s App Store and the 8th top-ranked social app on the Google Play Store on Monday, “a feat it has never achieved before,” said Abe Yousef, senior insights analyst at Sensor Tower.

Run by Shanghai-based Xingin Information Technology, Xiaohongshu makes money primarily from advertising, according to a Xiaohongshu spokeswoman. The company was valued at $17 billion after its latest round of private-equity investment in the summer, according to research firm PitchBook Data.

Not everyone is singing kumbaya. Some Chinese Xiaohongshu users are worried about the language barrier. And some American TikTok users are concerned about data safety on the Chinese app.

But many are hoping to build bridges between the two countries.

“Y’all might think Americans are hateful because of how our politicians are, but I promise you not all of us are like that,” one American woman said on a Sunday video she posted on Xiaohongshu with Chinese subtitles.

She went on to show how to make cheese quesadillas using a waffle maker.

The video collected more than 11,000 likes and 3,000 comments within 24 hours. “It’s so kind of you to use Chinese subtitles,” read one popular comment posted by a user from Sichuan province.

Another Guangdong-based user commented with a bilingual “friendly reminder”: “On Chinese social-media platforms please do not mention sensitive topics such as politics, religion and drugs!!!”

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

Chinese users of Xiaohongshu, or Little Red Book, welcome Americans fleeing a feared TikTok ban