NEW YORK (AP) —
Companies from toothpaste makers to discount stores are adding more premium items like body creams and designer services as they reach wealthier shoppers who continue to spend freely even in the face of inflation. higher and a volatile economic environment.
Think $10 toothpastes and $90 creams on supermarket shelves.
Retailers and consumer products companies felt justified in raising prices to offset higher costs from twisted supply chains and Russia’s war in Ukraine last year. But as those financial pressures ease, some are looking for new ways to boost sales and profits by focusing on premium items amid a general slowdown in sales.
“If you want to protect yourself against economic challenges, hedge your bets by chasing the top earners,” said Marshal Cohen, senior industry adviser at market research firm Circana.
Many companies that typically cater to middle-income shoppers are launching a slew of premium items in a bid to appeal to consumers with more money to spare. But that could leave fewer options for consumers with less money to spare.
Walmart, for example, offers high-end $90 creams in its beauty aisles at select stores. Ketchup maker Heinz launched a line of chef-inspired seasonings called Heinz 57, which includes an 11.25-ounce container of black truffle-infused honey that costs about $7. Last year, Colgate-Palmolive made a splash by announcing its $10 three-ounce stain-removing toothpaste, the first in the US at this price, noting that premium products were essential to driving up prices.
Meanwhile, Five Below, a chain known for selling toys and other impulse items for $5 or less, is creating a new store concept: Five Beyond, which sells items for $6 and up. Last year, the Philadelphia chain converted 250 of its 1,300 stores to the concept and plans to expand that conversion to another 400 stores this year.
Five Below CEO Joel Anderson told analysts on a call in January that those who buy Five Beyond items spend more than twice as much as those who buy only Five Below items.
Some, like Chipolte Mexican Grill, have even announced that they’re not looking for discount-loving shoppers. The restaurant chain has been outspoken for the past year about how its price increases have scared off low-income consumers. Last fall, he introduced the guajillo garlic steak, a limited-time offering that was more expensive than the regular steak.
In a conference call with investors in February, Chipotle Chairman and CEO Brian Niccol said the chain, which raised prices 13.5% in its most recent quarter, is seeing higher-income customers visit more frequently.
“We made the decision not to go after people with discounts,” Niccol said. “That’s not what our brand is and that’s not what we’re going to do.”
Critics like Rakeen Mabud, chief economist at the left-leaning The Groundwork Collaborative, believe such moves will only increasingly exclude the less economically fortunate.
“As products become more expensive and companies focus more on the wealthier segments of our population or our consumers, ordinary people are increasingly underserved and increasingly unable to afford the products they need,” he said. Mabud.
When AMC Entertainment, the world’s largest movie theater chain, announced in February that it would implement a new three-tier pricing system at all of its locations by the end of the year that would require customers to pay more for better seats, actor Elijah Wood, best known for his portrayal of Frodo Baggins in the “Lord of the Rings” film trilogy, criticized the move on Twitter.
“The movie theater is and always has been a sacred democratic space for all and this new initiative by AMCTheaters would essentially penalize lower income earners and reward higher income earners,” he wrote.
The gap between the haves and the have-nots has only widened during the pandemic.
Households with annual incomes of more than $156,000 make up 20.7% of the US population, according to research firm GlobalData. However, they accounted for about 38.3% of all retail spending last year, up from 37.5% in 2021. Excluding food and other essentials, shoppers in that group accounted for 41.7% of spending last year. past, compared to 39.5% in 2021.
At the other end of the spectrum are low-income households that are spending their savings accumulated during the pandemic at a faster rate than anyone else. Households with incomes below $50,000 have depleted their savings by half since the peak reached when the last stimulus check was sent in March 2021, according to data from the Bank of America Institute. Households with incomes over $250,000 have reduced their largest savings by just 15%.
Low- and middle-income buyers have also been hurt by the Federal Reserve’s anti-inflation drive to raise interest rates that has made using a credit card or getting a car loan more expensive. But the Fed’s efforts may be waning as your favorite inflation gauge slowed down sharply last monthwhile consumer spending rose modestly, according to Commerce Department reports released Friday.
Luxury retailer Neiman Marcus is doubling down with special services and exclusive offers for its billionaire shoppers who shop an average of 25 times a year and spend more than $27,000 a year. For example, the store recently partnered with designer fashion label Brunello Cucinelli to hold a fashion show at a local ranch outside of Dallas for its main client.
Neiman Marcus stressed that it is hardly ignoring the rest of the customer spectrum, but noted that given a volatile economic environment, it pays to invest more in its most loyal shoppers, specifically the top 2% that generate roughly 40% of its total sales. .
American Express Chief Executive Stephen J. Squeri told analysts on an earnings call in January that the company is limiting its focus to the wealthiest applicants.
“That premium customer base, while not immune to the economic downturn, is certainly spending right now,” he said.
Associated Press writers Chris Rugaber and Paul Wiseman in Washington and Dee-Ann Durbin in Detroit contributed to this report.
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