‘Frugality Fatigue’ spurs some to trade up in buying habits

Bloomberg NewsApril 14, 2012 

— – Some Americans are buying more expensive makeup and sandwiches again as Estée Lauder and Dunkin’ Brands Group get a boost from mid- to high-income customers.

Those consumers are “feeling the wealth effect” from an “amazing run” in the stock market, said Britt Beemer, chairman of America’s Research Group, a consumer-behavior research and consulting company in Charleston, S.C.

Sentiment among people earning more than $50,000 fell to minus 12.2 in the week ended April 8 from a four-year high of minus 8.2 the prior week, according to the Bloomberg Consumer Comfort Index. Americans making more than $100,000 were the only income group with a positive reading: 9.7, the second best since January 2011.

“Frugality fatigue” is driving a rise in retail sales among consumers who’ve “grown tired of putting off discretionary purchases,” said Russell Price, a senior economist at Ameriprise Financial in Detroit. Recent gains, including a 6.5 percent increase in February from a year earlier, have been bolstered by improvements in consumer confidence and the labor and stock markets, along with some stabilization in home prices, he said.

“This has been a long, drawn-out recovery, and for most people alive today, it’s the longest they’ve had to conserve financially,” said Price, who was among the top-ranked forecasters of quarterly gross-domestic-product growth for the two years ending in February, according to the most-recent data compiled by Bloomberg. “As their prospects improve, some pent-up demand is being released.”

Even with a less-than-predicted gain in U.S. nonfarm payrolls last month – 120,000 compared with a median forecast of 205,000 in a Bloomberg survey – the economy has added 635,000 jobs since December as unemployment fell to 8.2 percent from 8.5 percent, Labor Department data show.

Meanwhile, the median price of existing homes climbed 0.3 percent in February from a year earlier, the biggest gain since July 2010, and the Standard & Poor’s 500 Index is up 10 percent this year.

Estée Lauder’s “high-end luxury” skin-care and makeup brands are growing “faster than average,” benefiting from consumer trade-up and affluent shoppers, President and Chief Executive Officer Fabrizio Freda said Feb. 24 at the Consumer Analyst Group of New York conference. The New York-based company’s 16.5-ounce Crème de la Mer moisturizing cream sells for $1,800.

Customers at BJ’s Restaurants eateries are ordering more appetizers or drinks with their meals, Chairman and Chief Executive Officer Gerald Deitchle said in February. The Huntington Beach, Calif.-based operator is “selling more items per 100 guests today than we ever have in the history of the company.”

Consumer-spending plans rose at full-service restaurants for the second consecutive quarter and fell at quick-service establishments, suggesting people probably will trade up again after a year of trading down, said Larry Miller, an RBC analyst in Atlanta.

Even customers at fast-food chains such as Dunkin’ Brands doughnut shops are opting for a “better level of sandwich,” Chief Executive Officer Nigel Travis said in February. This has helped drive a “higher average ticket,” with its sausage breakfast sandwich one of the best-performing limited-time offers in the company’s history.

The spending boost may be temporary because rising gasoline prices are “the biggest nemesis to retail sales,” Beemer said. The average gallon of regular unleaded is up about 22 percent to $3.91, near a three-year peak, from a low of $3.21 in December, according to AAA, the largest U.S. motoring organization.

Some low-income consumers still are demonstrating frugality, and industry data show there’s a “barbell” phenomenon, with fine-dining and fast-food restaurants doing well and middle-tier eateries struggling, Miller said.

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