Luxury Briefing: How luxury shoppers are trading down in the challenging economy 

“Our value proposition is the same whether we’re selling a pair of diamond earrings or fashion jewelry, and people want to get a lot for their money,” he said. “It serves us well through bumpy economies.”

In the fourth quarter of last year, he and his team learned that people who have a passion for wearing fine jewelry are “trading down” to Kendra Scott products, which deliver on quality but have a lower price point. “When the economy was great, [these shoppers] stretched into higher-end brands, like Tiffany [& Co.] or David Yurman and other brands that are seen as ultra-premium. But then they became uncomfortable spending at those very high price points. And so we’ve attracted new customers.” he said.

There are mixed messages about how luxury consumers are currently spending. But — when factoring recent data, expert insights and insider reports of recent customer behavior — the resounding message is that the luxury consumer isn’t much different than consumers with less spending power. They’re shopping as they’ve always shopped, but they’re being more thoughtful about their purchases — and especially for the highest net worth shoppers, that’s not synonymous with pinching pennies.

In late February, Kearney Consumer Institute, consulting firm Kearney’s internal think tank, released a report on inflation’s impact on consumer shopping decisions. Among those surveyed, 64% said that, despite rising prices, they generally had not altered which goods and services they’d purchased in the prior six months. However, they had redirected their funds: Sixty-nine percent said they had reduced their spending in one category, in order to spend in another. And just 34% of respondents said they viewed those shopping “trade-offs” as downgrades. 

One such tradeoff shoppers are making is buying from more affordable brands — a Kendra Scott pearl bracelet is $650, while a Tiffany & Co. version is $1,350, for example. But while luxury shoppers will budge on brand name, they often aren’t willing to sacrifice quality, said Katie Thomas, head of Kearney’s KCI and author of the consumer spending report. The focus is spending on what’s “fair.” 

Brands including Chanel and Hermès have recently and drastically increased their prices, making luxury out of reach for more shoppers. But recently, the rise of “quiet luxury” has expanded the options for achieving a luxury look beyond logoed heels and handbags. In order to justify their prices, it’s important as ever for luxury brands to prioritize fine craftsmanship and elevated levels of service. 

Luxury resale is reportedly also seeing a boost from former primary market shoppers trading down for used styles. In addition, shoppers are making spending adjustments in order to afford what they value most — and currently, they’re prioritizing experiences including travel. 

“They’ll shop at Walmart so they can get the best bang for their buck day-to-day and still have their splurges,” said Thomas. She also pointed out the recent growth of Dollar General and that its fastest-growing customer segment is high-income shoppers. 

The rise of e-commerce and Google search-based shopping, which serves up a plethora of options across price points, has supported this shift. The same is true of the increasing competition across product categories; influencers are among founders bringing compelling, competitively priced products to market. To win consumers across price points, more brands are working to ensure they’re highly visible in distribution channels where consumers are in a shopping state of mind.  

According to data compiled by McKinsey, April 2023 marked the first time in two years that year-over-year spending declined across all age and income groups. In a Glossy and Saks survey of luxury shoppers the same month, 30% of people said they’re spending less in 2023, compared to 2022. And 24% said they plan to spend less in the next 12 months, compared to the 12 months prior. Sixty-five percent of respondents said that they plan to spend the most on travel in the year ahead.

Molly Shaheen and Huw Collins, founders of 6-year-old luxury retailer Wheat, have based their self-funded business on popular travel destinations. On Saturday, they’ll open a store with an adjoining coffee shop at Faraway Martha’s Vineyard, which follows their May opening of a location at Faraway Nantucket. Their 17th location will open this year in Dover, New Hampshire, followed by their 18th in the Boston area in spring 2024. Their stores are primarily based within hotels, including locations of the Four Seasons and the Ritz-Carlton.

According to Collins, Wheat’s business grew 20-30% in the last year, with its physical footprint being driven by demand among hotel groups and owners. “There was a big disparity between their amenities and their retail offerings, which all looked a bit like Hudson News,” he said. For its part, Wheat sells lifestyle products by the likes of Zimmermann, Tom Ford Eyewear and Augustinus Bader.  

“We considered the luxury hospitality sector as immune to the effects of big economic swings,” he said, though noted that the height of the pandemic proved otherwise. “We’re capturing consumers in the ideal mentality; they’re at a luxury destination and at their spendiest.” 

Brands have become increasingly eager to sell at Wheat as the company has expanded and travel has taken off. “It’s a new way to capture consumers,” Collins said. 

However, Thomas predicted that the return of student loan payments in October will have a negative impact on the travel boom. Based on high demand from people catching up on vacations, the prices of hotels and flights have increased, for example. And, after three years, many consumers will owe hundreds of dollars per month. The impact it will have on consumer brands is less clear, she said.

“[The payments] could prove beneficial to products because [people may think], ‘Instead of going on a $3,000 vacation, I’ll buy myself this $1,000 splurge,’” she said. “Or they may decide to pull back on high-ticket items altogether.”

Of course, these fluctuations in spending are more common among shoppers for whom a luxury purchase is a splurge versus the norm. 

According to Collins, Wheat’s private-label apparel, made up of “luxury essentials at an approachable price point,” like a V-neck T-shirt for $98, has been selling at an “unbelievable” rate both in stores and online. The company has increased production of the styles to keep up. It’s worth noting that Kearney’s consumer report showed that just 34% of people surveyed considered buying store brand products versus brand name products a downgrade. On the other end of the spectrum, Wheat has seen an uptick in sales of fine jewelry, including styles by Jennifer Meyer that sell for $500-$11,000. 

“People are either trading down or trading up, and we’re seeing a tightening in the middle,” he said. That’s also reflected in the company’s best-performing stores, with the highest sales coming from top-tier resorts including the Four Seasons locations in Anguilla and Lanai. The one store that’s seeing declining sales is based in York, Maine. 

“Companies are seeing high-income consumers trading down for cheaper goods/services,” a Bank of America financial analyst was quoted as saying in November, in reference to tech layoffs at the time. “Mentions of ‘trade down’ during earnings calls [have] soared to a record level, topping the [global financial crisis] level.”

Consumer price index inflation hit a 40-year high of 9.1% in June 2022, but it’s been steadily falling over the past 12 months. Meanwhile, interest rates are above 5% and still climbing.