High-end sales fall in worrying sign for U.S.

Richer Americans had been offsetting inflation, but data shows they’re buying less as holiday shopping begins

Richer Americans are curtailing their spending ahead of Black Friday, a worrisome sign for an economy that has so far depended on the U.S. consumer to stave off a recession.

In the three months ahead of the all-important holiday shopping season, a group of retailers that cater to the upper middle class — including Apple, Coach and Nordstrom — saw its biggest sales drop in two years, according to an exclusive analysis of Bloomberg Second Measure data. The malaise also hit top-performing malls in wealthier areas, even as overall retail-sales figures march higher.

Despite record interest rates and soaring inflation, the upper middle class “had been driving a lot of the stronger-than-expected spending,” says Kayla Bruun, a senior economist for Morning Consult, a survey research firm. Now, people with at least $100,000 in household income are starting to become more frugal, she says.

On Tuesday, Best Buy Co. and Lowe’s Cos. cut their forecasts and warned shoppers were pulling back on bigticket items like appliances ahead of the holiday season. Kohl’s Corp. reported its seventh-straight drop in comparable sales, as a partnership with Sephora drew in customers but didn’t spur them to spend more money on other items at the department stores. Even positive results at some retailers left investors wanting more as shares slumped at Abercrombie & Fitch Co. and American Eagle Outfitters Inc.

Affluent shoppers often have an outsized impact on shifts in consumer spending because they have money to splurge when times are good but are quicker than the wealthy to pull back when feeling pressured. So a hit to the brands, retailers and shopping malls that cater to richer Americans foreshadows potential weakness ahead for the U.S. economy.

As a proxy for high-income spending, Bloomberg created an affluence index of 30 large retailers and brands across 10 categories — spanning clothing, jewelry and electronics — with average transaction values above their peer group.

All the companies in the index surpassed an average of $100 per purchase in October, save for makeup and skin-care sellers Sephora and L’Occitane. Some retailers, including Apple ($267) and West Elm ($292), far exceeded that. Most are popular holiday-shopping destinations, including Best Buy and Williams-Sonoma.

The retailers and brands in the index experienced a deterioration in sales since January that recently deepened, according to Bloomberg Second Measure, which tracks anonymous U.S. credit- and debit-card transactions. Sales for the three-month period from August to October declined at 70% of the companies. The median change in sales reflected a 14% drop — the worst performance in two years.

Julie Robinson-Jasper, 54, whose Seattle household earns more than $100,000 a year, is already planning to keep holiday spending tight. She’s capped gifts for her two kids at $600 — the same amount as the past three years, but with considerably less buying power after rapid inflation. The family is mostly eating at home to avoid higher prices at restaurants and turning to the resale market for clothing.

“We don’t want to be caught with our pants down if something were to happen again, like a layoff or an illness,” says Robinson-Jasper, who works for a plant nursery.