Are the Rich Like Us?

As retailers fight to get customers back into stores, prognosticators have hoped the high-end of the market would be the first resume spending. Even though luxury's core wealthy customers have not been as hard hit as aspirationals, there is more evidence that the return to old spending habits is a long way off. The highest end of the market continues to cut back spending in all categories. Maybe the rich really are like the rest of us.

Why is this? Well, wealth (like everything) is relative. Even though it's hard to muster sympathy, in high end real estate markets, the lower end is suffering. Foreclosures and short-sale blues are hitting these consumers just as in middle class markets – one in seven mortgages over $1 Million is seriously delinquent. Last week, the New York Times wrote about the spike in payment delinquencies and short-sales in Los Altos, CA, where the median home price is $1.5 million. Note to Los Altos: Palo Alto is snickering at you.

Luxury retailers are adapting to more careful customer behavior. More customers are making multiple visits to stores before deciding on a purchase. These consumers are not only planning purchases more prudently but waiting for possible discounts and prolonging the thrill of the purchase. Neiman Marcus is one retailer retraining associates to work with customers within the longer sales cycle.

I spoke with one customer who related her story of shopping at Ralph Lauren in Atlanta. She fell in love with an evening gown at the store, but wasn't ready to bite at the $6,000 price point. As soon as the dress was marked down to $2,000, the sales associate called her personally and she was ready to buy. Just like us? Relatively.

Retailers inspire customers to spend more and return less

Summer is in high gear and innovative retailers are exploring ways to make customers feel better about spending, maintain loyalty to their brands and reduce merchandise returns. Here's a rundown of some newer initiatives…

• Several retailers are experimenting with stricter return policies. J Crew's summer sale is now the "Final Sale"… all sales are final. Prior to the recession, upscale retailers almost always accepted exchanges and returns – even on clearance merchandise. However, as inventories are more closely monitored by Wall Street, the final sale is becoming a more common move.
• Store loyalty programs are offering more attractive benefits to bring in new customers. Just as Back to School is rolling out, Target is offering Redcard holders a 5% discount on everyday purchases – this is on top of the 10% one-day signup discount. Expect to see several more store charge cards offer similar programs during Holiday.
  
• Sam's Club, Walmart's warehouse store for small business, is running a novel experiment to stimulate spending. The store is offering club members affordable loans in conjunction with the Small Business Association to stimulate enterprise growth. While the company will be lucky to break even on the loans themselves, it is betting that when club members' businesses grow, so will Sam's Club.