While cash-strapped consumers continue to evaluate nonessential purchases, affluent and wealthy shoppers are operating on a whole different wavelength. One has to just take a look at the luxury sector for evidence.
Sales at LVMH Moët Hennessy Louis Vuitton — parent company of the likes of Christian Dior, Fendi, Givenchy and Tiffany & Co., among others — soared 19 percent to 19.76 billion euros last quarter. German luxury e-commerce site Mytheresa had double-digit growth in its fourth quarter. While Farfetch lost money in its most recent quarter after pulling out of Russia and because of ongoing COVID-19 restrictions in China, the luxury e-tailer’s top-line revenues grew more than 14 percent, year-over-year.
“Luxury is a very resilient industry. It will continue to be resilient, more than any other industry, certainly in fashion,” José Neves, Farfetch’s founder, chairman and chief executive officer, told WWD last year. “People are not going from Hermès to H&M. You’re not going to go to a dinner party, or a wedding, or a social event with last season’s dresses if you love fashion, if you’re into this part of culture.
“And for the high-net-worth family, these are not big-ticket items,” he continued. “That’s not where they cut their spending from.”
On the other side of the spectrum, budget-conscious shoppers are pulling back on discretionary items. In other cases, consumers are spending any extra money they have on experiences over tangible products.
But will this trend persist into the new year as inflation shows no signs of slowing down and fears of a recession continue to loom?
The effects of this split are clearly visible at a company like Urban Outfitters Inc., which counts Urban Outfitters, the Anthropologie Group, Free People, Terrain and Bhldn among its brands. While the slightly pricier Anthropologie and Free People brands continued to make gains (even as consumer prices rise), sales at the nameplate brand fell 9 percent during the pre-holiday season.
“Customer shopping at our brands has bifurcated,” Richard A. Hayne, CEO of Urban Outfitters Inc., told analysts during a conference call to discuss quarterly earnings last fall. “For the Urban brand customer, who is younger and less affluent, the current inflation is economically crippling.”
Retailers, like consumers, are also struggling to keep up with rising prices in the form of elevated freight and shipping costs, employee wages and energy costs. There’s also the problem of inventory, which is expensive to store and has led to an increasingly promotional environment as firms try to unload an excess of goods.
The mass channel, meanwhile, has a few advantages over specialty retail, even in the face of inflation. Namely, big-box stores sell essentials and food. In the last few quarters, Walmart has reaped the benefits of its essential status thanks to its massive grocery business. While Target has made some gains from its growing beauty and food businesses, the retailer’s greater mix of discretionary items — and rapidly changing consumers habits — has led to steep declines in profits.
But just how long the boom in travel and consumer desire to splurge on experiences will last is unclear. And higher prices means consumers are more inclined (even high-income individuals) to shop at discount stores in the midst of runaway inflation. That’s the case at Walmart, which improved on top-line sales last fall, in part because of a greater number of affluent consumers flocking to the mass channel in search of discounts.
“We’ve continued to gain grocery market share from households across income demographics, with nearly three-quarters of the share gain coming from those exceeding $100,000 in annual income,” John David Rainey, Walmart’s chief financial officer, said during November’s conference call.
Doug McMillon, president and CEO of Walmart, added: “Regardless of income, families are more price conscious now. Living with higher prices this year has had a cumulative impact on our customers.”