Luxury shopping is making a comeback.

Commentary about business and finance.
May 28 2010 2:15 PM

Don't Worry, Keep Spending

Luxury shopping is making a comeback.

Illustration by Mark Alan Stamaty. Click image to expand.

Are the rich coming back? Just in time for the premiere of Sex and the City 2, there are signs that the orgy of luxury shopping that made the latter years of the credit bubble so much fun are back.

Item 1: fancy food. On May 20, "Breaking Views" columnist Rob Cox said that "the corridors of wealth and finance are alive with new optimism." His main tell? Whole Foods reported a solid quarter, "the best we have reported in several years," as CEO John Mackey put it. Same-store sales were up 8.6 percent, and Whole Foods boosted its outlook for the whole year. The stock price has doubled in the last year.

Item 2: fancy homes. "Luxury Sales Bounce Back," screams the headline in aFriday Wall Street Journal article about high-end residential properties. In both San Francisco and Manhattan, the Journal reported, the number of homes that sold for more than $2 million in the first quarter of 2010—49 and 402, respectively—was higher than the comparable 2005 figures.

Item 3: fancy stuff. On Thursday, Tiffany reported an excellent first quarter, with global sales up 22 percent. Much of the growth was driven by Americans' newfound discovery of the allure of the pale blue boxes—and the overpriced metal bits that are stuffed inside them. "Sales in the New York flagship store rose 26% and comparable Americas' branch store sales increased 13%. Internet and catalog sales in the Americas rose 23%." A few blocks south on Fifth Avenue, Saks reported that after seven straight quarters of decline, same-store sales finally rose in first-quarter results, up 6.1 percent. Total sales were $667 million. At Nordstrom, same-stores sales in the first quarter were up 12 percent from the first quarter of 2009, and net sales came in at $1.99 billion, up 17 percent from the year-before quarter.

These data all point to signs that the rich may be back. But back from what? The Whole Foods-$2 million condo-Tiffany-Saks-Nordstrom crowd has experienced a reflation in assets, net worths, and egos. (If sales of Botox and cosmetic surgery start to rise, this reflation will be evident elsewhere.) But the same-store sales figures may be somewhat misleading. The truly rich never went away, even during the depths of the recession. And these big luxury brands don't just cater to billionaires and hedge-fund magnates—there just aren't enough of them to support hundreds of stores. No, the shoppers who enabled mass luxury marketers to thrive were the not-quite-rich, the coastal $250,000-plus earners who deny they're rich, the haute bourgeoisie who frequently act rich, and the not-at-all-rich who used home equity and credit cards to fake it at certain stores. While they may have emerged from their stunned, locked-down stupor, these consumers are not at full strength.

Tiffany's sales were $633.6 million in the first quarter, about what they were in the first quarter of 2007. At Saks, sales in the first quarter of 2010 were still down 23 percent from the first quarter of 2008. Neiman-Marcus reported that sales in its most recent quarter bounced back, but they were still 19 percent below the sales figure from the 2008 first quarter. And so on. For home values and high-end retailers—as for the stock market—2007's results may represent a high-water mark that won't be surpassed for several years.

In order to return to full financial health, these companies will have to convince their core audience of the anxious affluent that it's OK to blow $130 on organic vegetables or $475 on a pair of shoes. And while the economy is growing, many of the affluent are still anxious—about their volatile 401(k)s, about job security, and about home values. They're feeling much better than they were in 2009. But it may take another year or two of solid growth, market gains, and healthy bonuses before they start to party like it's 2007.

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Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster. Follow him on Twitter.