Posted on: Sunday, May 16, 2004

America's affluent spending a bit less

By Susan Chandler
Chicago Tribune

CHICAGO — For Susan Garvey, window-shopping was a pleasant diversion on a recent sunny afternoon. The brightly colored spring offerings were tempting after the end of another dreary winter, but she was determined not to be swept away.

It's not that money is tight. Garvey, the president of an interior design firm, is shopping in another market, choosing to buy stocks rather than splurging on a summer shift or strappy sandals.

"When I added up what I was spending, I couldn't justify it," Garvey said. "It's fun to go on a shopping spree, but then you have to look at the bills and determine whether it's worth it. It's not."

Spending clout

Financial advisers may admire Garvey's fiscal resolve, but if too many affluent Americans pull back on spending, the economic recovery could be in jeopardy.

Affluent households, often defined by retail consultants as those with incomes of $100,000 or more, make up only 14 percent of U.S. households, but their effect on the economy is much greater than that. They are the ones with money left over for extras after paying the mortgage, buying food and gassing up the car.

The affluent also are the ones who cut back their expenditures most sharply in the past few years as fears of terrorism and a falling stock market brought a halt to the spending binge of the 1990s.

A recent survey of upper-income households — defined as households with incomes of at least $75,000 — found consumer confidence among this group recovered quite nicely in 2003 as a rising stock market restored some value to many battered portfolios.

Feeling somewhat better

Yet that boost in good feelings didn't translate into the same increase in spending, according to Unity Marketing, a marketing consulting firm in Pennsylvania that conducted the survey.

While almost half the upscale consumers surveyed said their feeling of financial well-being had improved in 2003, only 30 percent said they were spending more on luxury compared with the year before and 21 percent said they were spending less.

Confidence among the affluent has dipped slightly since then, which Pam Danziger, Unity Marketing's founder, attributes to the deteriorating military situation in Iraq and stock market jitters.

"But if you look where affluent consumers are likely to spend, those places are doing well," said Carl Steidtmann, Deloitte Research's chief economist. The luxury sector is outperforming the rest of the economy."

High-end spending grows

In fact, there's plenty of evidence that the upper middle class is holding up its end.

Tiffany & Co.'s sales have sparkled for months now. They rose 18 percent in the last two months of 2003, after a similarly strong performance in fall.

Profit at Neiman Marcus Group soared 84 percent in the period ending Jan. 31 as sales topped

$1 billion for the first time in a single quarter. Sales at stores open at least a year rose 25 percent in February and 26 percent in March.

Sid Doolittle, a retail consultant with Chicago's McMillan/Doolittle LLP, gives Neiman Marcus credit for "maintaining good vibes during a tough economy."

Feeling cautious

Neiman Marcus isn't the only place well-off consumers are spending in a big way.

The market for second homes in trendy parts of California and Arizona is booming. Builders of luxury yachts say wealthy customers are placing orders again after a several-year hiatus.

Still, the affluent in general still are not spending as much as they could. In terms of anxiety, the rich aren't that different from the rest of us, said Candace Corlett, partner with WSL Strategic Retail.

"Everybody is feeling more cautious," she said.