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,” said 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 that shoppers were pulling back on big-ticket 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.
The slowdown at malls and retailers serving the upper middle class contrasts with the headline U.S. retail-sales numbers, which have posted year-over-year growth since 2020, when the pandemic shut the economy down. While in lockdown, higher-end shoppers began splurging on their homes and new wardrobes. As Covid faded, spending shifted to services and experiences like vacations, restaurants and Taylor Swift concerts.
But years of high inflation and rising interest rates have soured the moods of some consumers. While the job market has remained strong, real incomes have had periods of decline, with parts of the upper middle class taking a bigger hit.
Spending patterns among the upper middle class often reflect how they feel about their wealth, which is strongly tied to the value of their homes. In several major markets, property prices have been falling.