High-end goods stay hot despite economy’s retail chill
Inflation isn’t deterring consumers in Houston from luxury shopping
The hottest inflation in 40 years is squeezing households forced to pay higher prices for food, energy and almost everything else, driving consumers to spend more cautiously and generally hurting retailers.
Unless they are selling luxury goods.
Jewelers, watch sellers and custom tailors are all reporting strong sales that show no sign of waning. At Hamilton Shirts, a Houston store selling custom-made shirts for about $300, demand is so strong that orders that once took three weeks to complete now take eight weeks as high-end shirt makers try to keep up.
“Customers are spending,” said co-owner David Hamilton. “It’s been strong since last summer and hasn’t slowed down yet.”
Luxury retailers are bucking inflation, rising interest rates and growing recession fears that mainstream retailers say are responsible for slumping sales. The Woodlands-based home goods retailer Conn’s, for example, cited these economic conditions last week when it reported a 19 percent plunge in second quarter sales from a year earlier.
Same for consumer electronics retailer Best Buy, which said its sales fell 12 percent. Bed Bath & Beyond reported a 26 percent dive in its second quarter sales, prompting the retailer to close 150 stores and lay off 20 percent of its workforce.
In contrast, luxury goods are thriving. The global personal luxury goods market value grew 17 to 19 percent in the first
quarter, according to the
global consultancy Bain & Co, now worth over $2.8 billion.
“The United States, in particular, maintained momentum,” Bain analysts noted.
That momentum was on display last weekend at the Montrose Collective, where Canadian jewelry brand Mejuri opened a new store at the mixed-use development on Westheimer Road. The line on opening weekend stretched outside the store, a company spokesperson said, with customers clamoring to shop price tags ranging between $80 earrings to $550 solid gold necklaces.
At Zadok Jewelers, a familyowned luxury jewelry and watch store, a watch can run anywhere from $400 to more than $1 million, according to partner Jonathan Zadok. Recently, sales of watches over $5,000 have jumped, Zadok said. Watches that cost more than $50,000 are selling even better, he added.
Key concern
Consumer spending is a key concern for economists and policymakers at the Federal Reserve since it accounts for 70 percent of the U.S. economic activity. When consumers pull back, so does the broader economy.
Consumers are paying 13 percent more for groceries, 15 percent more for electricity and 44 percent more for gasoline, according to the government’s latest inflation report. They are also paying more to borrow as the Fed aggressively raises interest rates to slow the economy and bring inflation at under control — a policy that raises the risk of a recession.
Typically, higher prices and economic downturns tend to lower demand for big discretionary purchases — such as new furniture or a TV set that consumers can easily delay to a time when the economy is doing better.
But luxury retail has two distinguishing factors that allow the segment to prosper even in tough times, according to Venky Shankar, research director of Texas A&M University’s Center for Retailing Studies.
The word luxury comes from a Latin word meaning excess or abundance. True to its name, Shankar said, the luxury market’s survival has come largely at the hands of wealthy consumers who have the excess money to afford it.
Got it, flaunt it
Spending on jewelry by households with income above $125,000, for example, jumped 20 percent in August from the same month a year earlier, even as it declined for lower income groups, according to customer credit card spending data published by Bank of America.
The second major factor, Shankar said, is that the exclusivity and high price tag are part of the appeal of a luxury product.
Jewelry, expensive clothing and other luxury items belong to a category economists call Veblen goods, named for the economist Thorstein Veblen, who developed the theory of conspicuous consumption. For these goods, an increase in price increases demand. People buy luxury goods to be seen wearing them, even if — and often, because — the price is so high, Shankar said.
The pandemic is another factor. The return to normal is contributing to demand for luxury products, retailers said. For many white-collar workers heading back to the office, the pressure to look good is uniquely high, said Segev Zadok, partner at Zadok Jewelers.
“They are upgrading their wardrobe, including purchasing jewelry and watches,” he said.
The return of large weddings is also driving many purchases of new shirts, according to Hamilton. Other customers have changed sizes during the pandemic due to disruptions in their daily routines, and are now seeking clothes that better fit them — or their lifestyle.
“There has been a pandemicinduced economic condition, and we’re still recovering from that,” said Shankar. “It’s like a black swan, a once-in-100-years or more event. This is a little bit unique, this situation, and we might not have found it in a more typical recession or inflation-environment.”