The Wall Street Journal reported yesterday that retailers were making gains in sales - unsurprising, yawn-worthy news given that it was expected. But here is where it gets a bit interesting.
Arnold Aronson, managing director at retail consulting firm Kurt Salmon, cautions against optimism given February's relatively strong start, warning: "They are not a firm confirmation retailers will have a good spring and a full year. We're still dealing with chronic issues like high unemployment, high gas-pump prices and longer-term the higher prices that will be passed on to consumers because of rising costs for cotton and other raw materials." So why is The Fashionomist slightly flabbergasted? High-end department stores smashed the competition: Saks Inc. boasted a 15% jump (a mere 4.9% was expected). Similarly, Nordstrom reported a 7.3% jump (again beating expectations). While middle class consumer stalwarts JCPenney, Macy's, and Kohl's displayed generally good numbers, The Fashionomist finds it odd that high-end merchandise amidst a financial crunch are outperforming those that are more consumer friendly.
Unless...
High-end clothing is an inferior good. In econtalk, this translates to the situation that occurs when incomes remain stagnant but demand for a good continues rising; in other words, despite the higher prices, consumers are demanding more, even if their incomes aren't proportionally rising.
As much as this is counterintuitive (The Fashionomist always viewed clothing as a normal good, or those goods which see a proportional demand/income relationship), there is evidence. Jeff Edelman, director of retail services at consulting firm RSM McGladrey, notes: "Consumers are moving more toward purchasing items they want, in addition to those they need [despite continuing headwinds]. We're finally coming out of the storm, both literally and figuratively." Agreeing with Mr. Edelman is the March 2011 issue of "Elle," which interviews Randi Jacobson, owner of the just-opened high-end boutique Realm in downtown New York: "Back on the East Coast, Jacobson, too, has found that consumers are still spending - or have begun spending again - despite the bruised economy. 'Honestly, I think people who have money, have money,' she says, 'and they're kind of sick of not spending it because it's not 'in' to spend money.'"
The Fashionomist is unsure when spending money became a fashion statement (perhaps "Gossip Girl" is to blame?), but this seems to be.
In any case, dear readers, a minor earthquake in fashionomics occurred today: high end clothing snuck into inferior good status.
http://online.wsj.com/article/SB10001424052748703300904576178162089278334.html
*The Fashionomist*
Very interesting. It's as though people save and save buying goods from discount stores like Walmart, we feel a need to treat ourselves with a little luxury. And what better way than with clothing? It's something tangible and something we can be physically enveloped in. We can embody wealth even if it does not reflect the actual state of our bank accounts. A 'fake it 'til you make it' mentality. Can this affect on the psyche, this 'retail therapy,' expand into other aspects of consumer spending?
ReplyDeleteI think it is evidence of the Permanent Income Hypothesis. People smooth consumption through out their life time, so when there are changes in income these are not reflected by changes in consumption. For people who were already used to a consumption bundle that includes high end clothing and are able to smooth their consumption, will continue to purchase high end clothing. Unfortunately for those that experience liquidity constraints, those most likely to shop at JCPenny and Macys, you would see a drop in consumption as they are unable to smooth their consumption patterns! Just an idea....
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