Luxury Sales—Some Very Tangible Evidence of the Widening Income Gap

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Luxury Sales—Some Very Tangible Evidence of the Widening Income Gap

Rich Americans are buying again. The rest of us—not so much. The difference between the sales figures at luxury stores versus middle- and low-end ones is stark evidence showing who has been coming out of the Great Recession doing pretty well and those who have not.

An article in the business section of the New York Times made the point that “the retail economy is locked on two tracks: one for businesses that cater to the well-to-do, and the other for everyone else.”

On the low-to-medium end, retailers such as Target and JC Penney posted modest single-digit gains for sales in July compared to a year ago, while others such as Kohl’s actually had less sales this July than last. On the higher end, it seems like the more luxury-oriented, the better the improvement in sales. Nordstrom sales were up 6.6%, at Neiman Marcus up 7.7%, and at Saks Fifth Avenue up a whopping 15.6%.

The article points out some ways I never thought of through which retailers see what’s going on inside the wallets of their customers, particularly the low- to average-income shopper. They see people spending less towards the end of their pay periods, indicating that folks are living more and more paycheck to paycheck.  And instead of buying clothing and other necessities for the upcoming season, people tend more to buy only what they need when they need it. This also enables them to take advantage of seasonal sales. In turn these retailers have to cut their prices to bring these buyers into their stores, which drives down their gross sales.

In contrast, luxury stores are now able to sell much more of their merchandise without discount, and have even been able to increase their prices. According to Saks Fifth Avenue’s chief executive Stephen Sadove, “There’s a dramatic decline in the amount of promotions in the luxury sector — we’re seeing higher levels of full-priced selling than we saw prerecession.” Example: their Christian Louboutin “Bianca” platform pumps just about sold out, at full price, for $775 a pair. And while three years ago his store’s most expensive Louboutin suede boots cost $1,575; now you can get a fancier version for $2,495.

But before we get out our pitchforks to storm the gated mansions of the wealthy, here’s a bit of reality to chew on: “the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”

Sounds like we need the wealthy to continue spending.

It sure doesn’t feel like it, especially during this maddeningly slow “recovery,” but it’s true: we’re all in this together.