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Increased Luxury Sales Show 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 as compared to middle- and low-end ones shows who is coming out of the “Great Recession” doing pretty well and who is not.

An article in the business section of the New York Times a couple of weeks ago 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, while others such as Kohl’s actually had lower sales this July than last. On the higher end, it seems like the more luxury-oriented the store, the better the improvement in sales. Nordstrom sales were up 6.6% this July, Neiman Marcus up 7.7%, and Saks Fifth Avenue up a whopping 15.6%.

The article points out some ways that retailers see what’s going on inside the wallets of their customers, particularly the low- to average-income shopper. They see much lower sales in the weeks or days before shoppers’ paydays. People have less discretionary income, and tend to be living paycheck to paycheck.  And instead of buying clothing and other seasonal items, more people are buying only what they need when they need it.

In contrast, luxury stores are now able to sell much more of their merchandise, at full retail prices, 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 pre-recession.” 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, the top of the line version now sells for $2,495.

But before we get out our torches and 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 their recent increase in spending.

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

 

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