Trading Up turns into Trading Down

There was a great read in the New York Times about the state of luxury retail.  The article, "Thinking twice about that $400 handbag" posits that as the economy falters, the middle is being squeezed and those retailers catering to the mass luxury market will suffer most.

I don't know about where you live, but here in LA there's a general sluggishness and a lack of energy and enthusiasm.  Chalk it up to the faltering economy, general uncertainty, the election year, etc. and that makes life weigh heavy on the minds of many.  And that translates into retail malaise.

The hardest hit retailers are going to be those catering to the mass luxury market as customers forego the $400 handbag and go back to one that costs a quarter or half as much, if they buy one at all.

While they won't forego all of their expensive habits, they will resort only to buying those expensive items that matter most.

THE REAL WORLD RETAILING TAKEAWAY
The middle is being squeezed out.

It used to be that even 2-3 years ago, a splurge was a vacation at a St. Regis or Four Seasons resort at $395 a night.  These days, those rates are up at $750+/night.  Airline ticket prices are through the roof.  My dry cleaner is now charging $13 to clean a cashmere sweater.  My gym just raised its rates. 

There are two things going on here.

1.    The haves still have and have even more.  Hence those resorts can still charge premium prices and people will buy.
2.    The middle is stratifying.  In the past, the middle aspired to nouveau luxury, trading up to those items that they wanted.  They are now changing their habits and only trading up to those times they feel are worth it.  the upper middle is moving toward luxury while the rest of the middle is moving toward the lower end.

As a result of the crunch on the middle, they'll start reassessing everything they do.  They'll find a dry cleaner that charges $8 to clean a cashmere sweater, they'll shop at a different grocery store, or buy different products that are less expensive.  They'll go to a movie once every month instead of every two weeks.

Just look at your personal life.  Are you spending like you were six months ago?  Chances are you're not because the future is uncertain

You see where this is going, right?  As consumers cut back in every aspect of their lives, retailers will be hardest hit -- especially retailers that provide mass luxury and impulse purchase merchandise.  We're fools if we don't believe that this general malaise isn't impacting our businesses. 

Don't be fooled.  It's here and as you know, it's been here for the past few months.  So take it in stride, be proactive and tighten up your operation.

Figure out how to work around the slowdown if you can.  Customers are looking for value.  So talk up the value of your products.  Work with manufacturers on a special promotion so you can offer special pricing on some of the products or a gift with purchase to drive sales.  Anything you can promote as adding value will help.

The slowdown is here to stay - you need to get proactive to stay ahead.

How are you dealing with the slowdown?