Here’s an eloquent business chart, from the NY Times reporting yesterday on retail sales last month. I find the economics behind it fascinating. The big discount places, the high-volume low-price strategies of Wal-Mart and Costco, increased sales. The more expensive places, Saks and Nordstrom, fell heavily.
It looks to me like a classic example of price sensitivity. I see the retailers here as almost in order of their general price perception, from low price at the top to high price at the bottom. I’m actually not sure about TJX or Kohl’s, that’s not my expertise.
This is an interesting counterpoint to one of my favorite assumptions, namely that the high end holds up in a downturn. I got that from watching the Mexico economy for Business Week during the 1970s. In that economy, during a downturn, luxury cars held up while the sales of the economy cars fell.
That never seemed intuitive, and that was then, in Mexico; while this is now, and here in the U.S. Here we have data that seems to confirm what I think we’d all expect: people rushing down market during a recession.
Interesting observation. I'd guess that this is because of the differences in the American and Mexican middle-class. In the US, luxury items are within the middle-class's reach, while in Mexico even economy cars may be a strain.
In a downturn the middle-class cuts its largest expenditures. The result? American buyers shift to economy cars and Mexican buyers shift to used cars/no car. And since the people who buy luxury cars in Mexico are likely immune/resistant to economic pressure, sales of luxury cars remain steady.