The Wall Street Journal ran a noteworthy article on Monday (subscription required) citing evidence that middle income consumers are slowing down their spending in the face of high gas prices and a slowing housing market:
… Ms. Liebmann [president of consulting firm WSL Strategic Retail in New York] [cites] evidence that households earning as much as $75,000 a year are changing their habits. Survey responses among this group were more similar to those of low-income households than those of wealthy families, she says. The types of spending most likely to be chopped: fashion accessories, clothing, home decor, electronics and entertainment.
… many of the more upscale casual dining spots, including P.F. Chang’s China Bistro Inc., Applebee’s International Inc. and Cheesecake Factory Inc., have been warning investors of slowing sales. In a conference call last month, P.F. Chang’s president, Robert Vivian, said diner’s who were treating themselvs to a splurge in boom times are pulling back. Executives at P.F. Chang’s say the casual dining industry is in its biggest slump since 1991, when it was hurt by the Gulf War and the beginning of a recession.
‘You do have to go back over 15 years to find an environment where the consumer has responded like they are today,’ Chairman and Chief Executive Rick Federico said during a conference call July 26.
Boat maker Brunswick says it has adjusted to slowing demand by making fewer of its lower priced boats in response to the slowdown. ‘It’s better to take the hit right now and have lower production than it is to have too many boats sitting out there,’ says Mr. McCoy, the CEO.
Since homeowners often put such money [‘cash out’ mortgage refinancing, home equity loans and capital gains on sales] back into their homes, higher end home furnishing retailers could be vulnerable. Last month, Williams Sonoma warned that fiscal second quarter sales at Pottery Barn haven’t been as strong as expected. The retailer lowered its overall revenue projection for the period …….
As I previously suggested, however, the truly wealthy don’t appear to be all that affected by the slowdown:
To be sure, the nascent pullback isn’t affecting all retailers equally. Handbag maker Coach Inc., which bills itself as offering ‘accessible luxury’ and prices most of its products in the $200 to $800 range, said earnings in its most recent quarter jumped 33%…….
Similarly, high end department store chains Nordstrom Inc. and Neiman Marcus Inc. have continued their three year run of strong sales, with no warning signs that their customers are tapped out.
The trick here, then, is to separate those companies whose customers are so wealthy that they won’t be affected by a slowdown from those companies catering to a more middle class customer base that is feeling the pinch. The former companies might have their shares pulled down too much given that the current trends don’t affect them as much as it might appear on the surface. On the other hand, stay away from mid level casual dining chains, home furnishing and improvement retailers, etc…..