By ANNE D’INNOCENZIO, AP Retail Writer
NEW YORK — High gas prices are driving a wider wedge between the wealthy and everybody else.
The rich are back to pre-recession splurging: Saks Fifth Avenue and Nordstrom customers are treating themselves to luxury items like $5,000 Hermes handbags and $700 Jimmy Choo shoes, and purchasing at full price.
At Target and Walmart, shoppers are concentrating on groceries and skipping little luxuries. BJ’s Wholesale Corp. said Wednesday that customers are buying more hamburger and chicken and less steak and buying smaller packs to save money.
“The average shopper isn’t in the game, except for necessities,” said Faith Hope Consolo, chairman of retail leasing and marketing at Prudential Douglas Elliman. At the same time, among the rich, “Luxury products are selling like bread.”
J.C. Penney, Wal-Mart and home-improvement retailer Lowe’s Cos. all said they’re noticing their customers are consolidating shopping trips to save money on gas as the average price hovers at $4 a gallon.
More than a half-dozen corporate earnings reports this week show that for the affluent, rising prices are merely a nuisance. For others, they can mean scrimping to put food on the table.
The wealthy were the first to start spending again after the recession. Middle-class spending started picking up late last year.
But the retail earnings results show that rising prices for gas and food, particularly meat, dairy and produce, have started to erode spending power.
It could get worse later this year, when clothing prices are expected to rise 10 percent to 15 percent. Meat prices are expected to rise 6 percent to 7 percent this year and dairy products as much as 5.5 percent, according to USDA estimates.
The bottom fifth of earners, with a median household income is $9,846, spend 35.6 percent of their income on food and 9.4 percent of their income on gas, according to a report by Citi Investment Research.
The top fifth, whose median household income is $157,631, spends only 6.8 percent on food and 1.9 percent on gas. So they feel it less.
“While the U.S. economy is showing some signs of improvement, we expect the recovery will continue to be slow and uneven, particularly for more moderate-income households,” said Gregg Steinhafel, Target chairman, president and CEO said on a conference call with analysts Wednesday.
The divide is prompting stores to alter their strategies: luxury stores like Saks Fifth Avenue, which had added more items in its lowest price range on everything from shirts to suits after the financial meltdown in late 2008. Now, it’s back to the $300-plus dress shirts.
“We are increasingly optimistic about the future,” Saks CEO Stephen Sadove said in a call with analysts on Tuesday, after reporting a 9 percent increase in revenue for the first quarter.
At the other end of the spectrum, Wal-Mart and others are under more pressure to look for new ways to get their financially squeezed shoppers to spend, from offering more discounts to pushing smaller packages at the end of the month when shoppers have less money.
Target, whose shoppers’ median household income is $60,000, said Wednesday that it’s the better-off customers who are driving the revenue growth. The rest of its customers are focusing on necessities, resulting in declines for most everything in the store, from clothing to electronics.
Wal-Mart Stores Inc. the world’s largest retailer and a barometer of the financial health of consumers, has noticed rising gas prices are adding more financial strain on its low-income customers. The median household income for shoppers at Wal-Mart’s discount stores is anywhere from $42,000 to $45,000, estimates Craig R. Johnson, president of retail consultant Customer Growth Partners.
CEO Mike Duke told the media last month that Wal-Mart is seeing more pronounced drops in buying in the few days before the end of the month when money is tight and then a big spike in spending during the first few days of the month when many shoppers get paychecks or government assistance.
The company had already been adding more smaller-size packages at the end of the month to appeal to budget-constrained shoppers, but company officials said it plans to push smaller-size packs even more.
“The importance of delivering everyday low price has never been as great, as our customers are consolidating trips due to higher gas prices,” said Bill Simon, CEO and president of Wal-Mart’s U.S. division.
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