Posted on Monday, December 13, 2010
A new division is emerging in America between those who have moved on from the recession and those still caught in its grip.
This holiday season, those two worlds have been thrown into stark relief: At Tiffany's, executives report that sales of their most expensive merchandise have grown by double digits. At Wal-Mart, executives point to shoppers flooding the stores at midnight every two weeks to buy baby formula the minute their unemployment checks hit their accounts. Neiman Marcus brought back $1.5 million fantasy gifts in its annual Christmas Wish Book. Family Dollar is making more room on its shelves for staples like groceries, the one category its customers reliably shop.
"When you start to line up all the pieces, you see a story that starts to emerge," said James Russo, vice president of global consumer insights for The Nielsen Co. "You kind of see this polarized Christmas."
Though economists declared the recession officially over last summer, the pace of recovery has been uneven across income levels. The rebound in the stock market and record low mortgage interest rates have mostly benefited affluent households, buoying their confidence in the economy along with their ability - and their desire - to spend. Meanwhile, progress largely has bypassed poorer families who remain hamstrung by anemic wage growth and a higher unemployment rate.
This tale of two Christmases is being played out from the shopping mall to the kitchen table. At Towson Town Center outside Baltimore, sales are exceeding expectations in the mall's new wing of luxury retailers such as Burberry, Louis Vuitton and Tiffany's, executives said. But Miriam Pap of Baltimore City has never stepped inside those stores, even though she often works a few feet away, selling Auntie Anne's pretzels at a small cart at the entrance to the hallway.
"We don't have the money," Pap said on a recent afternoon, as she served up samples of cinnamon raisin to shoppers juggling Nordstrom bags and baby strollers.
Pap, 24, said she does plan to spend more this holiday season - only for bills, not on gifts for her daughter in Guatemala and definitely not on shopping for herself. Food, gas, even drycleaning seems to be more expensive, she said. This Christmas, she plans to work and feels lucky to do so.
"Here is job, job, job," she said.
While it has always been the case that lower-income families find themselves financially strapped more often than wealthy ones, the Great Recession was also a great equalizer. Wall Street bankers and construction workers alike got laid off. The fallout in subprime mortgages quickly spread throughout the real estate market. And consumers at all income levels slashed spending, whether that meant abstaining from designer shoes or trading down from beef to chicken.
The damage to shoppers' wallets was much broader than in previous generations, when the wealthy remained insulated from the nation's economic cycles. In recent decades, as the gulf between the incomes of the wealthy and the rest of Americans has widened, affluent families experience greater income loss during downturns but see an even bigger spike on the way back up, a Northwestern University study found.
The divide is evident in retailers' sales. Sales at luxury stores open at least a year - a key measure of retail health - plunged by a monthly average of 9 percent last year, only to skyrocket 7 percent so far this year, according to industry analysis. Discount stores eked out a 0.5 percent gain a year ago and are up just 2.6 percent this year.
"During the recession, it was very unfashionable to be fashionable and that is slowly changing," said Stephanie Brager, vice president for asset management at General Growth, which owns the Towson mall and Tysons Galleria.
That is not to say that luxury consumers have abandoned the lessons of the recession. Coach, for example, reported that sales in North America grew by double digits during its most recent quarter - but only after it lowered prices of its signature handbags and leather goods by 10 percent. Still, the company said customers' plans to buy in the future were at the highest level in two years.
"I honestly think people are tired of the recession," said Paula Reynolds, 56, a photographer who was holiday shopping at Towson on a recent afternoon. "I think people are ready to move on, but I think they're being cautious."
Reynolds bought clothes for her son at the Gap, two skirts for herself at Ann Taylor and nosed around Tiffany's for a new wedding ring for her husband, who lost his while surfing in the Pacific Ocean. She said more people are calling to buy her high-end prints, which she takes as a hopeful sign. And as a retail industry veteran, Reynolds said, she understood that "the more we shop, the better it is."
Economists say the biggest obstacle to a robust recovery is the high unemployment rate, which has hit workers with little education and low household income the hardest. The jobless rate for workers without a high school diploma is 15.7 percent - well above the national average and triple the rate for college graduates, according to government data. Meanwhile, the unemployment rate among households that had been making less than $50,000 is 15 percent, well above the national average of 9.8 percent, according to consulting firm Bain & Co.
These are the forces working against 27-year-old Chanise Lee of the District, who holds a high school diploma and has been looking for work for three months after losing her job at a nursing home when the owner went bankrupt.
"It doesn't feel like I'm out of the recession," she said. "I couldn't say what we need to do with the economy, but I know I need employment."
Lee visits the nonprofit Dress for Success almost every day while her kids are at school for help sprucing up her resume and finding business clothes for interviews. She has applied for about 50 jobs and secured four callbacks - including one last week for a position as a hotel concierge - but she is worried that nothing will materialize before the holidays are over.
Her game plan for Christmas Day is to distract her three young children with coloring sheets and a hearty breakfast when they wake up so they don't notice how few gifts are under the tree.
"By the time all of that's done, then the toys are not as exciting," Lee said. "I kinda take their focus away from the presents and back to where it needs to be."
By Ylan Q. Mui