Rich Buying Again, But Middle Class Still Hurting
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American shoppers are splitting again: The affluent are finally starting to buy, picking up designer clothes at places like Nordstrom, while those on the lower economic rungs are still scrimping by, heading to Walmart for the basics.
Recent earnings reports from major retailers suggest that the wealthy, who pulled back their spending the hardest during the financial meltdown last fall, are once again being enticed to open their wallets and going back to higher-end outlets.
"It's a good sign, but we don't see the same across the board," said Richard Hastings, a consumer strategist with Global Hunter Securities LLC.
It's still a far cry from the era of conspicuous consumption. No matter the tax bracket, people are still focused on value and trying to avoid overspending – whatever that might mean to them.
Luxury chains like Nordstrom Inc. and Bloomingdale's, owned by Macy's Inc., say shoppers are spending again on items like shoes and dresses, but still shopping for lower prices and classic pieces that get a lot of use.
On the other hand, discounters like Wal-Mart Stores Inc. are lowering prices even further to coax their less-well-off shoppers to keep spending. And it's not on anything glamorous. We're talking basics, like food and socks.
Think of it as two different groups as the economy recovers – spenders and savers.
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THE SPENDERS
Luxury department stores like Nordstrom and Saks are starting to get more traffic. Part of the reason is that they've rolled out some merchandise at slightly lower prices, which is helping to keep the affluent from trading down to other stores.
"If they do spend, it's very scrutinized and it's very value-driven," said luxury retail analyst Robert Burke. "And they want items they can wear multiple places."
Other expensive stores like Abercrombie & Fitch are taking the lesson. The preppy clothing seller said Friday it will offer some lower-priced basics and stock up on denim early next year.
Nordstrom's third-quarter profit rose as sales improved compared with last year. Of course, last year marked a sharp drop in luxury spending as the financial crisis deepened.
Shoppers like Patricia Murnane show what's still changed. The 47-year-old risk manager from New York was shopping for black dress slacks Friday at a Nordstrom in Chicago.
She says she goes to more stores now to make sure she's getting the best price. "I used to consider shopping entertainment, but now I don't think it's entertainment," she said.
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THE SAVERS
Middle-class and poorer shoppers are still clutching their wallets and focusing on basics, even as they start to venture out to stores more.
Kohl's, a chain of midrange department stores, said more customers came into its stores in the third quarter and made more purchases, but they're still limiting their spending.
Its shoppers are on a mission for a set list of items and not straying, CEO Kevin Mansell said.
"We're not able to convince them to buy that extra thing," he told The Associated Press.
Faced with slower sales, J.C. Penney Co. has cut its inventory so it doesn't have to rely on as much discounting. Sales were still weak as its shoppers continued to worry about job security and tight credit.
Walmart continues to benefit from higher customer traffic as it aggressively discounts everything from electronics to food. But its sales at stores open at least a year slipped for the second straight quarter as shoppers spent less.
Walmart noted more pronounced swings in spending between paycheck cycles – a sign that people have little extra to spend.
That makes sense because Walmart customers who earn the least money are among the economy's hardest-hit as unemployment tops 10 percent and gas prices edge upward, said Hastings, the consumer strategist.
"The lower-income Walmart shopper, they start to become poorer than usual, and they'll really start to lag behind," he said.
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AP Retail Writer Ashley M. Heher contributed to this report from Chicago.
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EMILY FREDRIX 11/13/09 10:43 PM ET Associated Press