As Shoppers Cut Back, Retailers Focus on Big Spenders

With economic pressures squeezing the lower and middle classes’ budgets, brands and retailers are setting their sights on the shoppers who still have cash to burn.

Indeed, many brands that operate across luxury and mass-market categories are turning their focus to the higher end of their offerings. Macy’s is closing 150 stores as it refocuses its attention on its luxury brands after record years at Bloomingdale’s and Blue Mercury.

Amid an overall economic slowdown, personal care products company Shiseido nonetheless reported strength in its luxury brands on its most recent earnings call. L’Oréal similarly reported optimism about its luxury offerings.

Even companies that have struggled to drive growth in their premium offerings are nonetheless focusing their efforts in this area. Nordstrom reported earlier this month that its premium self-titled banner saw net sales dip 3% year over year, while its off-priced banner Nordstrom Rack saw net sales rise by 14.6%.

“We will focus our Nordstrom banner efforts on digital-led growth supported by our stores,” CEO Erik Nordstrom told analysts.

Similarly, luxury eCommerce platform Mytheresa shared on its last earnings call that it is resisting the trend of catering to those seeking offers and discounts, increasing its focus on its most free-spending shoppers.

“Aspirational customers … are looking for deals. They are looking for discounts. The pressure [they feel] in the economic situation is continuing,” CEO Michael Kliger said. “So, we are totally focused on our top customers. [We’re not focused] on winning back market share from the aspirational customers. … Our focus remains strongly, on the [big] spenders that have the far better economics, that have the far better loyalty ratios and have the far higher average order [value].”

Indeed, historically, the luxury retail sector has shown resilience and adaptability in the face of economic challenges. Yet, even high-earning consumers are facing economic pressures.

The recent PYMNTS Intelligence study “New Reality Check: The Paycheck-to-Paycheck Report – Why One-Third of High Earners Live Paycheck to Paycheck,” which draws from a census-balanced survey of more than 4,200 U.S. consumers, finds that nearly half of consumers earning more than $100K a year lived paycheck to paycheck as of January 2024. Plus, 36% of those annually earning more than $200K reported the same.

This lack of financial safety net results in changes to how they spend. While 60% of shoppers overall cut back on nonessential purchasing, 56% of high-income consumers did the same, and 28% of consumers in this group have switched to purchasing lower-quality products.

Still, consumer sentiment is improving. The latest installment of the PYMNTS Intelligence “Consumer Inflation Sentiment” series, “The Cautious Spender: US Consumers Now Think First, Spend Second,” reveals that consumer retail spending rose nearly 7% year over year in December. Plus, while 57% of consumers expected higher retail prices in the next 12 months as of January, that share was down significantly from 64% a year earlier.

As brands and retailers recalibrate their strategies to court the affluent, emphasizing luxury offerings and cultivating loyalty among high-spending clientele, they are seeing mixed results. Despite challenges, high-earning individuals face their own financial constraints, which in turn alter their spending habits. Still, signs of resilience emerge as consumer sentiment rebounds.