Luxury in Strange Places
More retailers are offering luxury goods as they attempt to attract wealthy consumers.
The latest condiment offering from Heinz (KHC) is a $7 container of black truffle-infused honey. Last year, Colgate (CL) introduced a 3-ounce stain-removing toothpaste for $10. Five Below (FIVE), famous for sub-$5 prices, is piloting a $6-and-higher brand, Five Beyond. And even everyday low price pioneer Walmart (WMT) is now stocking a $90 beauty cream at select stores.
Other companies have explicitly stated their intention to pivot toward higher earners. Chipotle’s (CMG) CEO Brian Niccol stated that the company won’t “go chasing people with discounts.” The chain recently hiked prices 13.5%.
Following the Money
As inflation rose steadily for most of last year, many retailers were able to raise prices without raising eyebrows. As the inflation rate slows, some companies are now taking a different tack. By increasing the percentage of high earners in their customer base, these retailers hope to tap into a consumer who is more resilient to economically challenging times.
Consulting firm GlobalData reported that, while households with annual incomes over $156,000 comprise just 20.7% of the US population, they represented nearly 40% of retail spending last year, up from 2021.
The broad-based price increases over the last year have hit low-income households hard. Pandemic savings are depleting in this group faster than any other segment of the population.
Households with incomes under $50,000 have nearly halved their savings since the March 2021 peak, when the last stimulus check was received. By comparison, households bringing in more than $250,000 have seen their savings shrink by only 15%.
As more companies cater to the wealthy, consumers may see fewer affordable options in familiar places. Fortunately, other discount retailers are approaching the shifting economic climate in a different way. Dollar General (DG) and Dollar Tree (DLTR) are going on hiring sprees and expanding into hundreds of new locations.
So even as more retailers turn to luxury, consumer goods aren’t going anywhere. You may just have to change where you’re looking.
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