Never before has it been so chic to be cheap. And the looming threat of a double-dip recession means consumers aren’t about to abandon that mind-set anytime soon, according to industry observers.
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While restrained spending has always gone hand-in-hand with a shaky economy, now, more than ever, Americans are bragging about their rock-bottom fashion finds. As America’s unemployment rate nears 10 percent and underemployment weighs in at 17 percent, shoppers are opting for more affordable labels to freshen up their wardrobes or are staving off purchases altogether. Job security and salary growth have gone out the window for many, along with lenient consumer credit.
And all over the globe, there is speculation the fallout from the worldwide recession could lead to a deflationary spiral that would leave the global economy in the doldrums for years. The U.S. Federal Reserve just downgraded its outlook for domestic economic growth, with chairman Ben Bernanke sizing things up as “unusually uncertain.” Japan’s gross domestic product inched up at an annualized pace of 0.4 percent in real terms in the April-to-June quarter, which only put global recovery into further question. Adding to the consternation is the fact that Eurozone inflation climbed 1.7 percent in July, its highest annual rate in 20 months.
While the average American may not be glued to London’s FTSE or Japan’s Nikkei, he or she is more inclined to acknowledge the reality of his or her own financial situation. At Forever 21’s new 90,000-square-foot Times Square flagship Friday with her teenage daughter, Donna Georgio said she is definitely shopping at stores such as Marshalls and TJ Maxx more than Bloomingdale’s like she used to. “Part of it is due to clothes being too expensive and I’m afraid of losing my job or getting into debt,” she said. “I’m 50 years old. I’ve had all the clothes and have gone from having Audis and BMWs to a Volkswagen. My priorities have changed. But I can still hook it up and look good.”
Nearby, 27-year-old Blanca Martinez, a Seattle resident, was shopping away despite being laid off by American Apparel in March. Two months into a cross-country road trip with her boyfriend, Cody Perez, she said she prefers to splurge at fast-fashion chains and thrift stores (though she does buy shoes at Nordstrom). “I love clothes and I want a lot of them, but I don’t want to put a huge dent in my savings,” Martinez said.
Consumers have plenty of reasons to be frugal and will keep trading down and saving money for years to come, according to Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail and consulting banking firm. “People are looking for value and the consumer mind-set has changed forever. All you have to do is look at what’s going on with Mango, Zara and H&M [financially],” he said. “The most dramatic example is Japan. I have a home there. It used to be the biggest place for luxury [shopping]. Everything has changed there because the standard of living is declining and that’s what is going on here.”
Davidowitz noted food stamp usage in the U.S. is at an all-time high, banks continue to repossess homes and state and local governments running large deficits should result in further layoffs. He pointed to TJX’s $20 billion sales, Ross Stores Inc.’s strong financial results and Family Dollar and Dollar General’s building 1,000 stores between them as signs of retail’s future. And fast-fashion specialists such as Forever 21 and Topshop are responding to trends and getting goods into stores in two weeks — a turnaround time that is considerably faster than department stores. “In business, time is life. If you are competing against someone who can respond in 14 days and you take two months, you’re done,” he said.
There is plenty of proof that stores expect shoppers to keep shopping for deals. High-end department stores are accelerating the expansion of their outlet formats: Saks Fifth Avenue is opening more Off Fifth stores, this spring Neiman Marcus unveiled an 11,000-square-foot Last Call discount store in Dallas, Nordstrom opened a Nordstrom Rack store earlier this year in Manhattan’s Union Square and Bloomingdale’s has just entered the outlet store business, Davidowitz said. Last week J.C. Penney Co. Inc. and Kohl’s Corp. lowered their profit forecasts, though Davidowitz noted the non-mall-based Kohl’s is better positioned with one-third the size of most big-box department stores.
Going forward, time-starved consumers will be more inclined to patronize urban stores as opposed to mall-based ones, Davidowitz predicted. And many fast-fashion resources — Forever 21, H&M and Mango, among others — are favoring city streets for new stores as opposed to malls. Urban Outfitters, for example, opened a 15,800-square-foot store at 2633 Broadway on Manhattan’s Upper West Side Thursday, and plans to unveil a Fifth Avenue flagship Dec. 9 and an Upper East Side store next month.
Vice president and senior analyst Scott Tuhy of Moody’s Investors Service said, “We’ve been talking about two things. One is value is in, and the second is high-end spending is tough. Just look at TJ Maxx’s results versus Neiman Marcus’.”
And boasting about bargains is as much about necessity as it is about anything else, he said. “Part of the reason this is happening is because consumers don’t really have an alternative. Incomes are under pressure and credit is tight,” Tuhy said. “If you look back at the boom years, a lot of that spending was accessed through credit. Debt-fueled affluence or aspirational consumerism is going to be challenged to return and is not about to get us back to where we were.”
Needless to say, he is not counting on shoppers to start spending more freely anytime soon. “From a big-picture macroeconomic standpoint, we are expecting a very sluggish recovery in the economy that is probably not conducive to consumers waking up one day feeling a lot better about everything and willing to spend again,” said Tuhy, adding the projected growth in consumer spending is 2 percent. He also noted the bounce-back will take at least 12 to 24 months, if not longer.
Chris Christopher, senior principal and economist with IHS Global Image, said, “When times are good, people use fashion to show how important they are. When times are tough, they use it to show more modesty.”
Just as the Great Depression called for a more subdued dress code, this recession has triggered more restrained spending. The fact that the U.S. Commerce Department reported Americans on average saved 6.4 percent of their monthly incomes clearly shows they are cutting back on discretionary purchases, Christopher said.
“They don’t want to be in your face,” he said. “We can’t get economic data from the census to show these things, but economists can gather anecdotal evidence from people who follow these trends. People have been traumatized by losing a job or seeing so many people unemployed. That affects what they do with their money. It’s not just the economy. It’s a mixture of the sociological, psychological and economical.
“I always take my shoes to be repaired and I ask the owner, ‘How’s business?’ Last time I asked, he said, ‘Wonderful.’ That’s when I know we’re in trouble,” Christopher said.
The financial fallout has led to a greater appreciation for experiences rather than possessions, and quality family time will only become more important, he said. “Conspicuous consumption is not very chic right now,” Christopher said. That behavior is counter to the Veblen effect, named after economist Thorstein Veblen, who first noted that decreasing the value of high-end goods only decreases people’s interest in buying them, he added.
Consumers are kidding themselves if they think fast fashion distinguishes them from the masses, said Ellen Ruppel Shell, author of “Cheap: The High Cost of Discount Culture.” Topshop may have certain status for being London based and the same might be said of the Swedish chain H&M, but the reality is that neither is all that different from Wal-Mart, she said. “Frugal chic is kind of a label in itself now. But I would argue that we are deluding ourselves. These goods are mass produced, sold all over the world, available to everyone and they don’t involve a lot of creativity,” Shell said. “Truly fashionable people are able to go to thrift stores to find something stylish.”
Ostentatious displays of wealth are not in fashion, whether that be in relation to clothing, expensive bottles of wine or pricy cars, she said. During her recent trip to Spain, First Lady Michelle Obama made a point of wearing a few repeat outfits “to show some level of modesty,” said Shell — but she was still criticized by the media for being a modern-day Marie Antoinette because she was staying in an ultraluxurious, extremely expensive five-star hotel. “She got lambasted for being extravagant when so many Americans are in a tough situation financially,” Shell said.
In Europe, where sales tend to be held only twice a year, stores are trying to get a handle on price chopping, which has become more of a regular thing in recent months, said trend forecaster Pierre-François Le Louet. “There is a whole cheap lifestyle, which is quite fashionable at the moment,” he said “Prices are going down and down. That is not very good. Brands will have to reposition themselves.
“People are much more conscientious of how they’re spending their money,” he added. “They are trying to recover and are not as open to shopping as they were a few months ago.”