By Michael Barbaro (in The Nation in today's NY Times)
IT was a retail juggernaut that swept through Americas shopping malls and bedroom closets, rewriting the rules of class and consumption.
But affordable luxury is not looking so affordable or sustainable anymore.
During the 2007 holiday shopping season, the middle-class consumers who spent the last decade splurging on $300 saucepans and $600 scarves, tightened their purse strings in the face of slipping home prices and rising energy costs.
As a result, an entire economy built around aspiration is starting to collapse. Affordable luxury purveyors like Tiffany & Company, Nordstrom and Coach have experienced slowing sales and plunging stock prices, problems likely to deepen after the stock markets continued slide last week reinforced fears of a recession.
But one of the biggest casualties may be the illusion of wealth that millions of Americans enjoyed for years, one Burberry trench coat at a time.
You had a lot of people who graduated to a level of consumption they could not really afford, said Adrianne Shapira, a retail analyst at Goldman Sachs. Two-hundred-dollar pairs of denim were plausible when home values soared, but now $100 jeans are looking more reasonable.
The phenomenon earned many nicknames mass affluence, new luxury, masstige and was best summarized by the retail experts Michael J. Silverstein and Neil Fiske in their 2003 book, Trading Up: The New American Luxury.
They posited that Americans with household incomes of $50,000 and above tend to trade up to high-end products in categories like kitchen appliances or bedding that are emotionally important to them, while perhaps pinching pennies elsewhere to compensate.
Dozens of chains rode this masstige wave, and earned billions in the process. Coach persuaded women to buy $400 handbags when a $60 version from Macys could have sufficed. Williams-Sonoma trained shoppers to covet a $35 stainless-steel hand-crank can opener, even though Wal-Mart sells a high-quality electric model for less than half the price. And 7 for All Mankind convinced people that they wanted a $200 pair of jeans made from the same material in a $30 pair of Wranglers.
But trading up was always a fragile phenomenon. It rested, in large part, on consumer psychology a feeling of wealth derived from soaring home values and the steady growth of real income, that is, income adjusted for inflation.
Today, any growth in real income is all but canceled out in consumers minds by falling home prices and rising energy costs. Michael J. Kowalski, the chief executive of Tiffany, calls this the wealth affect.
Even if people have plenty of money on paper, he said, they suddenly feel less rich. It is a reaction to the general economic uncertainty that everyone is feeling, Mr. Kowalski said.
At Tiffany, the wealth effect translated into sluggish holiday sales of jewelry priced between $1,000 and $10,000, items aimed at what the chain calls its midtier luxury consumer.
Stephen I. Sadove, the chief executive of Saks Fifth Avenue, observed the same pullback in December. The customer who aspires to luxury is slowing down, he said. But the high end of luxury retailing remains strong.
So what will become of masstige if the economy actually tips into a full-blown recession?
Trading down, of course. Experts predict Americans will now grudgingly shift to cheaper brands for much of their shopping. For his part, Mr. Silverstein, the grandfather of trading up, is confident that consumers will pay a premium for the products that matter most to them.
The trading up phenomenon is quite recession-proof, Mr. Silverstein said. It might slow. But its way too early to say its over.
IT was a retail juggernaut that swept through Americas shopping malls and bedroom closets, rewriting the rules of class and consumption.
But affordable luxury is not looking so affordable or sustainable anymore.
During the 2007 holiday shopping season, the middle-class consumers who spent the last decade splurging on $300 saucepans and $600 scarves, tightened their purse strings in the face of slipping home prices and rising energy costs.
As a result, an entire economy built around aspiration is starting to collapse. Affordable luxury purveyors like Tiffany & Company, Nordstrom and Coach have experienced slowing sales and plunging stock prices, problems likely to deepen after the stock markets continued slide last week reinforced fears of a recession.
But one of the biggest casualties may be the illusion of wealth that millions of Americans enjoyed for years, one Burberry trench coat at a time.
You had a lot of people who graduated to a level of consumption they could not really afford, said Adrianne Shapira, a retail analyst at Goldman Sachs. Two-hundred-dollar pairs of denim were plausible when home values soared, but now $100 jeans are looking more reasonable.
The phenomenon earned many nicknames mass affluence, new luxury, masstige and was best summarized by the retail experts Michael J. Silverstein and Neil Fiske in their 2003 book, Trading Up: The New American Luxury.
They posited that Americans with household incomes of $50,000 and above tend to trade up to high-end products in categories like kitchen appliances or bedding that are emotionally important to them, while perhaps pinching pennies elsewhere to compensate.
Dozens of chains rode this masstige wave, and earned billions in the process. Coach persuaded women to buy $400 handbags when a $60 version from Macys could have sufficed. Williams-Sonoma trained shoppers to covet a $35 stainless-steel hand-crank can opener, even though Wal-Mart sells a high-quality electric model for less than half the price. And 7 for All Mankind convinced people that they wanted a $200 pair of jeans made from the same material in a $30 pair of Wranglers.
But trading up was always a fragile phenomenon. It rested, in large part, on consumer psychology a feeling of wealth derived from soaring home values and the steady growth of real income, that is, income adjusted for inflation.
Today, any growth in real income is all but canceled out in consumers minds by falling home prices and rising energy costs. Michael J. Kowalski, the chief executive of Tiffany, calls this the wealth affect.
Even if people have plenty of money on paper, he said, they suddenly feel less rich. It is a reaction to the general economic uncertainty that everyone is feeling, Mr. Kowalski said.
At Tiffany, the wealth effect translated into sluggish holiday sales of jewelry priced between $1,000 and $10,000, items aimed at what the chain calls its midtier luxury consumer.
Stephen I. Sadove, the chief executive of Saks Fifth Avenue, observed the same pullback in December. The customer who aspires to luxury is slowing down, he said. But the high end of luxury retailing remains strong.
So what will become of masstige if the economy actually tips into a full-blown recession?
Trading down, of course. Experts predict Americans will now grudgingly shift to cheaper brands for much of their shopping. For his part, Mr. Silverstein, the grandfather of trading up, is confident that consumers will pay a premium for the products that matter most to them.
The trading up phenomenon is quite recession-proof, Mr. Silverstein said. It might slow. But its way too early to say its over.
