[Dongle Dongle] Middle Class Closes Wallets Amid Economic Recession... Gloomy US Black Friday

Luxury Brands, Consumer Spending Down 14%
High-End Shopping Mall Foot Traffic Plummets
Middle and Upper Classes See Income Drop Due to Mass Layoffs
Retailers Expect Decline in High-End Product Sales

This year, the largest annual discount event, 'Black Friday,' has arrived again. Black Friday is a shopping festival held on the fourth Friday of November, during which American companies heavily discount leftover inventory that couldn't be sold during Thanksgiving. It is an event similar in nature to China's Singles' Day, which takes place on the 11th of the same month.

Black Friday is a day eagerly awaited not only by consumers but also by companies. However, this year, companies are expected to find it difficult to enjoy the usual Black Friday boom. Due to recent high interest rates and rising prices, the middle and upper classes in the U.S. are tightening their belts. Today, we will look into how much consumption by the middle and upper classes is decreasing during the holiday season amid the U.S. economic recession, and examine the current state of the U.S. domestic economy.

[Image source=Bloomberg]

Sales Decline in High-Income Target Brands... Luxury Department Store Chains Struggle

Bloomberg reported that, based on credit and debit card sales data collected over three months from August, covering 30 U.S. retailers, 70% of all companies experienced a decline in sales compared to the previous year. The sales decrease was 14%, the highest in two years.

[Image source=Bloomberg]

This trend was particularly pronounced among brands targeting the middle and upper classes. Bloomberg compared the combined consumer spending on 30 high-end brands, including apparel and electronics, with overall U.S. retail sales trends and found that spending on high-end brands declined more sharply. From August to October, nationwide U.S. retail sales decreased by 3.2%, whereas consumer spending at the 30 companies selling high-end products dropped by a significant 14.4%. Among these 30 companies were the American fashion brand Coach, luxury department store chain Nordstrom, and electronics company Apple.

Looking at individual companies, Coach's sales fell by 19.2% year-over-year during the three months from August, while Polo Ralph Lauren saw a dramatic 31.2% decrease. Nordstrom's sales declined by 8.1% during the same period. Nike and the luxury interior brand Pottery Barn experienced sales drops of 2.9% and 33%, respectively.

Foot traffic has also dwindled at shopping malls targeting high-income consumers. Bloomberg surveyed foot traffic at malls located in affluent residential areas across 25 U.S. states and found that visitor numbers decreased in 21 states. As the year-end approaches, visitor numbers have further declined, with foot traffic over the past three months dropping by 3.3% compared to the previous year. This is the largest decline since early 2021, when the U.S. economy was hit by COVID-19.

In fact, a shopping mall in Houston, where household incomes are 20% higher than the Texas average, saw visitor numbers fall by 6% over the past three months. Middle and upper-class shoppers who used to visit this mall are now only window-shopping without opening their wallets, causing headaches for store owners.

Retailers have already interpreted these indicators as signs that high-income consumers are closing their wallets. Major U.S. electronics retailer Best Buy and home improvement retailer Lowe's have lowered their year-end sales forecasts. They expect reduced purchases of high-priced products like electronics this Black Friday due to cutbacks in middle and upper-class spending. The U.S. department store chain Kohl's reported a seven-year consecutive decline in overall sales despite generating significant profits through collaboration with cosmetics retailer Sephora. Losses from decreased high-end product sales at department stores offset the gains from Sephora.

High-Income Consumers Driving Sales Face Income Cuts Due to Restructuring... A Signal of Consumption Slowdown

This year, consumption by the middle and upper classes has shown an unusual pattern, contrasting with the rising trend in U.S. consumption indicators since the pandemic. Despite recession concerns, U.S. retail sales rose for four consecutive months from May to September. U.S. retail sales are a key indicator that investors watch closely as they reflect Americans' spending power amid recession fears. The retail sales indicator rose after the pandemic due to a severe labor shortage that caused rapid wage increases for low-wage workers.

Shoppers in New York are walking along Fifth Avenue, New York's shopping street, on Black Friday.
[Image source=Bloomberg]

However, unlike low-income groups, the middle and upper classes had no choice but to tighten their belts this year. This is because large IT companies, known for paying high salaries, began restructuring after the pandemic, leading to a surge in unemployment among the middle and upper classes. The mass layoffs significantly reduced incomes in these groups. According to the U.S. Census Bureau, the median household income in the U.S., mostly composed of college graduates, fell 4.9% year-over-year to $118,000. This decline is twice the average income decrease across all workers.

As a result, retailers expect dark clouds over Black Friday sales this year. Experts explain that middle and upper classes with annual incomes exceeding $100,000 have driven much of the U.S. spending more than previously anticipated. During the pandemic, when outings were restricted, these groups supported U.S. retailers' sales through online shopping. According to Bloomberg, companies selling high-end products like Coach and Apple enjoyed a boom thanks to high-income consumers during the pandemic. However, with their spending declining toward the end of the year, it seems unlikely that this year will see the same boom.

Moreover, the recent slowdown in wage growth among low-wage workers, who have supported overall U.S. retail sales, signals a general consumption slowdown in the U.S. This means that even low-income groups are unlikely to open their wallets this Black Friday.

The U.S. is a country where private consumption accounts for nearly 70% of gross domestic product. Although consumption slowdown is currently most noticeable among the middle and upper classes, if this trend expands, it could deal a significant blow to the overall U.S. economy. This gloomy Black Friday could be seen as a harbinger of the U.S. consumption slowdown.