Rich Americans are not only shopping again. They're showing off their purchases, despite an economy that still leaves millions of people jobless and underemployed.
"It's not polite to flaunt money when your friends are out of work," says Erika Maschmeyer, an analyst of retail stocks at Robert W. Baird in Chicago. Now, though, "we're far enough away from the disaster of 2008. We're back to normal fashion cycles."
While the U.S. unemployment rate remains high at 9.4 percent, the past two years have benefited Americans who primarily rely on income from investments rather than their jobs. The broad Standard & Poor's 500 stock index is up 61 percent since its March 2009 low and now trades above its level before the collapse of Lehman Brothers.
Luxury retailers did lose customers who couldn't really afford expensive products in the first place. With their access to credit restricted, two-thirds of so-called aspirational shoppers stopped buying luxuries in the recession, according to data from American Express Business Insights. Just a quarter of wealthy luxury customers stopped shopping, and many have been replaced by new, younger shoppers.
Luxury at Online Discounts
"The younger generations continue to spend as if nothing happened," says Ed Jay, senior vice-president at American Express Business Insights, which says 36 percent of luxury spending is now done by shoppers who were not buying high-end brands before the recession. About a third of these new shoppers are from Generation X, and 10 percent are from Generation Y. These prosperous young consumers have embraced luxury shopping through increasingly popular discount fashion websites, Jay says. Gilt Groupe is a prominent example.
Certain marquee forms of conspicuous consumption never really went away. In a forthcoming paper in the Journal of Consumer Psychology, Joseph Nunes, marketing professor at the University of Southern California Marshall School of Business, and two colleagues studied shifts in the styles of Louis Vuitton and Gucci handbags marketed in the U.S. before and during the recession. The study rated purses on the prominence of the logos that advertise the bag's pricey brands.
"Everybody was saying, 'the age of the conspicuous consumer is dead,'" says Nunes, so one might expect logos to shrink and brand identities to be more subtle. In fact, both companies "turned up" the prominence of their brands from January 2008 to May 2009, the researchers concluded. The study also examined the prominence of logos in advertising for other luxury handbag makers and found that none toned down their ads. One—Burberry—emphasized its brand further.
Grasping for Status
Handbags were studied because they are "the quintessential luxury good for women," a key way to flaunt an owner's status everywhere she goes, says Nunes. Handbag manufacturers are careful to reflect consumer demand, so why didn't they make less ostentatious bags during the recession? "A good chunk of America loves using products to signal their status," Nunes says. "If the recession didn't hit them"—and thus they could still afford to shop—"their need for status outweighed their need to follow social norms." A spokesperson for Louis Vuitton declined to comment; a phone call and an e-mail to Gucci were not returned.
After a 2010 holiday season that favored luxury retailers, the stigma against conspicuous luxury seems to be fading further, says Sherif Mityas, a partner in the retail practice at management consulting firm A.T. Kearney. For those who can afford it, "it's en vogue to spend money," he says. "They don't need to hide their luxury anymore."
For several years, women's fashion has been dominated by dark, subdued colors. "Personally, I'm over the gray and black," says Sapna Shah, principal at research firm Retail Eye Partners. Early indications are that 2011 collections will look different—more upbeat and prosperous. "Going into Spring, there is a lot of color and a lot of novelty," she says. "Nothing feels like it's dumbed down because of the economy."
Anxiety about the economy did drive some rich consumers to cut back, even when they could afford to spend. Yet much of their frugality was symbolic, says Harvey Hartman, founder of the Hartman Group, a consumer research firm. They would "try to cut one thing, but they'll spend more somewhere else," he says.
Don't Forget the Wannabes
With their wealthy clients shopping again, the next challenge for luxury brands will be luring back aspirational shoppers who gain enough confidence from an improving economy, Mityas says. That might result in even more products with prominent luxury logos. "The brand is as important as the product for that group," he says.
Apparel and accessories aren't the only forms of conspicuous consumption. Even as the economy was mired in recession, consumers of all income levels stretched to afford expensive electronics, says Michael McNamara, vice-president for research and analysis at MasterCard Advisors SpendingPulse. The definition of luxury is expanding, he says, to include these products, such as high-end televisions or the $499-to-$829 iPad made by Apple (AAPL).
Maybe it was never very realistic to think that well-heeled American shoppers were going to embrace a thrifty, frugal lifestyle. "It's like telling the consumer: You're not going to have fun anymore," Hartman says. As Americans, he says, "We're just not like that."