Wealthy Consumers Go Shopping

Discussion
Mar 22, 2011
George Anderson

While rising gas and food prices have already begun to slow
the spending habits of middle-income consumers (at least based on anecdotal
reports), the wealthiest in society appear to still be in high gear when it
comes to shopping.

Luxury retailers have been posting impressive year-over-year
gains in recent quarters as wealthy consumers benefit from record high bonuses
(in some sectors), historically low tax rates and a strong stock market.

An Orlando
Sentinel
 report pointed to the importance of the wealthiest
Americans continuing to shop. According to Moody’s Analytics, the top five
percent of income earners account for 37 percent of consumer spending in the
U.S.

Caroline Baum, a columnist for Bloomberg News, recently wrote, "The
rich are spending again; the more conspicuous the consumption, the better.
Gone are the exhortations to bankers in the dark days of 2008 and 2009 to temper
extravagant behavior, act more like an everyman, shun the limo in favor of
a yellow cab, and tone down the annual Christmas bash."

Among the extravagant
purchases being made by wealthy consumers of all nationalities, according to
Ms. Baum, Boeing 747s and Airbus A380s, helicopters, high-rise buildings as
a private residence and an 11-month old red Tibetan mastiff with a price tag
of $1.5 million.

Discussion Questions: Do you expect wealthy consumers to keep up their spending even as just about everyone else cuts back due to price increases? Should retailers that do not traditionally cater to top income earners make adjustments?

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17 Comments on "Wealthy Consumers Go Shopping"


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Paula Rosenblum
Guest
10 years 1 month ago

I think given the examples used (jets, helicopters, etc) as long as the stock market doesn’t tank, spending will continue.

The great recession made it embarrassing to conspicuously consume, and also forced even the uninvolved uber-wealthy to cut back some, as their portfolios were cut by 40%. This time, there are no businesses being bailed out (yet!), and no obvious reason for the rich to cut back for either fiscal or emotional reasons.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 1 month ago

What is the old saying “The rich get richer”? As long as the stock market does not take another death spiral, spending by the wealthiest in the world should continue to grow. This does not do much for stimulating the overall economy, but it is certainly fun to read about.

Doug Stephens
Guest
Doug Stephens
10 years 1 month ago

As I’ve said before, we’re heading into a prolonged period (at least 10 years) of duality in our economy. Those who rely on domestic growth and commerce to earn their living are going to have a tough go of it, as economic activity in the U.S. remains stop and start–but mostly stop.

Those who are fortunate enough to either own stock in or work for companies that are growing significantly in emerging economies such as Africa, Asia, India and South America will be doing comparatively well.

There are some additional thoughts on this here for those that are interested.

Anne Howe
Guest
10 years 1 month ago

Retail needs a shot in the arm for a lot of reasons. To the average household, watching the rich get richer and spend money without regard is tough. But for the industry that employs most of us panelists, it’s a good thing. And trust me, the wealthy have not totally abandoned seeking a bargain.

Their buying behaviors still reflect use of technology to find value. They may, however, have skipped clipping coupons from the circulars!

Warren Thayer
Guest
10 years 1 month ago

The trend should continue, and likely accelerate, barring calamity. As for changing your product mix and merchandising to cater to these folk, such decisions aren’t to be made lightly and depend on customer base, local demographics and trends, and competition. There’s opportunity here, but also opportunity to be found in the niches left behind by others who fly headlong into the upscale market.

Dick Seesel
Guest
10 years 1 month ago

Somebody who can afford a private 747 jet is probably not too troubled by the cost of filling up the tank. And a wealthy consumer who spends $1.5m on a mastiff is probably not going out of his way to buy dog food at Costco. The ultra high-end consumer described in the article has been returning to pre-2008 spending levels for about a year. The bigger question is how the luxury retailers catering to this customer–and the much bigger tier of “merely wealthy”–is faring right now. All the evidence is that luxury and near-luxury retailers, from Tiffany to Neiman Marcus, are thriving.

Fabien Tiburce
Guest
Fabien Tiburce
10 years 1 month ago

The problem with that is that the North American dream was based on giving the middle-class the means to purchase the products produced by the American manufacturing complex. One billionaire buying a plane is no substitute for 40 million people hitting the mall or heading to their local home improvement store. The “rich” spending is neither good nor bad, it is mostly inconsequential on a macro-economic scale. It’s too bad there are few people like Warren Buffet who realize the rich are under-taxed (not because of “fairness”, this is not, in any way a political or social rant, but because of economic “effectiveness”). Want to bootstrap the economy? Distribute money to less affluent households. They won’t save it, they will spend it.

Gene Hoffman
Guest
Gene Hoffman
10 years 1 month ago

If history has a lesson for us, it would seem to be that the human psyche is motivated more by money than by prudence. The rich will continue to spend, the financially strapped will have to be constrained and the world will continue to go on.

If retailers who do not now cater to the well-heeled try to make blended adjustments to woo them, they will have small appeal to the Tiffany or Whole Foods customers.

Ryan Mathews
Guest
10 years 1 month ago

The rich are different from the rest of us–they have money. And, people with money often go shopping .

Retailers catering to higher end clients will probably see a contraction in aspirational shopping by the almost (or hoping to be) rich but the real rich should keep on spending.

Bill Emerson
Guest
Bill Emerson
10 years 1 month ago

The sad truth is that the American middle class was built on industries that did not require a high level of technical skills. In large part, these industries have moved overseas and there is no shortage of opinions as to why this happened. Nevertheless, the reality is that the skills needed to succeed today require a highly educated population, something that America is simply not creating. There are lots of opinions about this as well, but, until this situation changes, there will be continuing polarization of wealth (and spending).

Len Lewis
Guest
Len Lewis
10 years 1 month ago

The rich hold on to their money by being careful with it. It’s not always the case, but a good benchmark.

They have money to spend on what they perceive as quality, hence the burgeoning business of retailers like Tiffany, Coach, Vuitton etc. But they don’t always eat caviar and Kobe beef. I’ve taken a couple of trips to a new Aldi store in Queens, New York recently. Interesting to see how many “upscale” looking shoppers are there.

Ryan Mathews
Guest
10 years 1 month ago

Len, really rich people don’t buy their own groceries they have people who buy them for them.

And, I’m willing to bet not too many Aldi shoppers buy jets.

I guess the key to this discussion really is how you define the luxury market. There’s miles of difference between the person who saves up for months to buy a Coach bag and the person who buys a 747.

Ed Rosenbaum
Guest
10 years 1 month ago

The truly wealthy will continue to spend. That is just the way it is. The recession in the ’30s and the many economic downturns since have shown them they have to be careful about where they spend. The new wealthy spenders will be investing in areas they will earn huge returns when the economy improves and the not so wealthy begin investing.

Camille P. Schuster, PhD.
Guest
10 years 1 month ago

As long as the real rich have money spending will continue. Why would it stop? The aspirational rich may be more cash-strapped and their spending may slow down.

Liz Crawford
Guest
10 years 1 month ago

I think that the recent disaster in Japan may impact The Wealthiest’s investments, which will curtail their spending. It’s major events like those that affect the wealthy, not prices at the pumps.

Craig Sundstrom
Guest
10 years 1 month ago

Yes.

Phil Rubin
Guest
10 years 1 month ago

Given that GDP growth was +3.1% in the last quarter and the stock market is actually flat for the month of March, there is absolutely no reason to expect the wealthy to curtail shopping. While the recession and near financial calamity had its impact, economics is a cyclical business and we are a long way from the trough of 2008 and 2009.

There are, however, risks on the horizon including both the Japan disaster aftermath and the rising price of oil. These aren’t going away but are just starting to impact the economy. As these two factors weave their way through, they will undoubtedly have an impact but it will be felt much more by the working and middle class consumers more so than the higher-end.

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