Nearly-rich customers are increasingly unwilling to spend — and that’s bad news for the US economy.
People who make between $US100,000 and $US250,000 are “making very careful decisions” on discretionary purchases, luxury marketing expert Pam Danziger told Bloomberg News. “That’s smart for them, but it’s certainly not good for the economy.”
Companies like Ralph Lauren, Coach, and Michael Kors are going after consumers aged 25-34 with money to spend but who aren’t rich, Danziger said in a recent report. These customers make up 18% of households.
She calls calls these customers HENRYs, for “High Earners Not Rich Yet.”
But as these customers suffer sluggish income growth, they are increasingly conservative with their dollars.
This has led to disappointing earnings reports from aspirational companies like Ralph Lauren, Coach, and Michael Kors, Danziger says.
The group is “the new face of the mass-market customer, since the traditional middle-class lost so much discretionary spending power in the recent recession,” Danziger writes.
Retailers like Macy’s, J.C. Penney, and Kohl’s have also reported mediocre results.
The companies have blamed a variety of temporary factors — such as delayed inventory shipments, bad weather in February, and fewer international tourists — for the slowdown in business.
But Americans are increasingly spending less on clothes and home furnishings, a trend that could hurt the companies’ businesses for years to come.
While lower gas prices mean consumers theoretically have more disposable income, the Commerce Department recently reported that US retail sales were flat as shoppers have other priorities.
A recent report by Morgan Stanley shows that millennials are spending more on expenses like rent, mobile phones, and personal services than young people a decade ago. This leaves less money for buying clothe and accessories.
Macy’s CFO Karen Hoguet blamed Netflix for her brand’s slow sales.
Electronics and online subscriptions are taking market share from apparel, Hoguet said at a recent conference covered by MarketWatch.
“I think part of that is the customers are buying other things, whether the electronics, cable services, Netflix, whatever,” Hoguet said.
While some products, like cosmetics, are selling well with the younger set, Hoguet told analysts that today’s consumers had priorities other than clothing and housewares.
“Shoppers are spending more of their disposable dollars on categories we don’t sell, like cars, healthcare, electronics, and home improvement,” Hoguet said in a call with investors.
Even when people do buy clothes, it’s unlikely that they’re willing to pay full price for them.
Retail expert and author Robin Lewis writes on his website that consumers will not pay full price because they have become addicted to promotions.
“With coupons, discounts, loyalty points, and gifts-with-purchase more the rule than the exception today, consumers are spending less because they can,” he writes.