Lux­ury spend­ing drop-off raises re­cov­ery con­cerns

Af­ter months of gains, re­port shows dip for June, the first since Novem­ber

Austin American-Statesman - - BUSINESSBRIEFING -

Af­flu­ent Amer­i­cans went back to tight­en­ing their belts in June af­ter months of show­ing other shop­pers how to spend, rais­ing con­cerns for the over­all econ­omy.

Data re­leased late Wed­nes­day by MasterCard Ad­vi­sors’ Spend­ingPulse shows lux­ury spend­ing dropped in June for the first time since Novem­ber.

Af­ter a sur­pris­ingly solid start to the year, over­all spend­ing also has slowed in re­cent months, and an­a­lysts are concerned that shop­pers will re­main tight­fisted through the cru­cial hol­i­day sea­son.

The 3.9 per­cent de­cline in lux­ury spend­ing from the same month last year is par­tic­u­larly wor­ri­some be­cause the well-heeled — house­holds with an­nual in­comes in the top 20 per­cent, about $158,000 on av­er­age — ac­count for al­most 40 per­cent of con­sumer spend­ing in the United States.

And a down­trend in lux­ury spend­ing, which ex­cludes jew­elry but in­cludes up­scale cloth­ing, ac­ces­sories and res­tau- rants, could sig­nal trou­ble for re­tail and in turn for the broader econ­omy. Con­sumer spend­ing — in­clud­ing such ma­jor ex­penses as health care — makes up about 70 per­cent of U.S. eco­nomic ac­tiv­ity.

Citi In­vest­ment Re­search an­a­lyst Deb­o­rah Wein­swig and other an­a­lysts said the small in­creases in in­ven­tory that stores have or­dered for the fall and hol­i­day sea­sons could end up be­ing too much, mean­ing greater dis­count­ing, which would hurt re­tail­ers’ profit mar­gins.

Up­scale mer­chants could be hurt the most, Wein­swig said, be­cause they tend to or­der even fur­ther in ad­vance than other re­tail­ers.

“In gen­eral, we are look­ing at a sta­ble but mild growth,” said Michael McNamara, vice pres­i­dent of re­search and anal­y­sis at Spend­ingPulse, whose fig­ures in­clude trans­ac­tions from May 30 through Satur­day.

Af­ter build­ing over­all mo­men­tum dur­ing the first quar­ter, “we’ve been just tread­ing wa­ter,” McNamara said. “Spend­ing seems to be shift­ing month to month, depend­ing on where there is a sale.”

With the stock mar­ket down from its late April peak, the lux­ury slow­down wasn’t un­ex­pected: Lux­ury sales typ­i­cally move in sync with the stock mar­ket. But they didn’t fall in May, and June’s drop was sig­nif­i­cant, said McNamara. That leaves lit­tle hope of a re­turn to pre-re­ces­sion lev­els soon.

“It isn’t a good omen for the con­sumer re­cov­ery, which can­not ex­ist with­out the lux­ury spender,” said Mike Niemira, chief econ­o­mist at the In­ter­na­tional Coun­cil of Shop­ping Cen­ters.

More data com­ing Thurs­day cov­ers June rev­enue at se­lected re­tail­ers’ stores that have been open at least a year, con­sid­ered a key in­di­ca­tor.

June is when stores clear out sum­mer goods to make room for back-to-school mer­chan­dise. But an­a­lysts say dis­count­ing on cloth­ing was heav­ier than ex­pected as stores had to work hard to pull in shop­pers con­tin­u­ing to grap­ple with fi­nan­cial wor­ries.

Still, June’s fig­ures will look bet­ter than May be­cause June in­cludes part of Me­mo­rial Day week­end and be­cause swel­ter­ing heat in most parts of the coun­try helped to drive cus­tomers to stores to en­joy the air con­di­tion­ing and buy sum­mer tops and shorts.

Niemira, who says he will closely monitor the fig­ures for Saks Inc. and pri­vately held Neiman Mar­cus Group, pre­dicts the over­all fig­ure will rise 3 to 4 per­cent for June, com­pared with a 5.1 per­cent drop a year ago. In May, it rose 2.6 per­cent.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.