The trend: Even high-income households aren’t immune to inflation. As prices continue to rise, affluent consumers are shopping at retailers that can offer them the most value—like Walmart, Costco, and Aldi. At the same time, while demand for luxury remains steady, a strong dollar is driving many to travel abroad for their shopping sprees.
Inflation creeps upward: The rapid increase in prices has ratcheted up the pressure on high-earning households. Inflation accelerated in September, with the CPI rising 0.4% month-over-month and 8.2% year-over-year (YoY), per the Bureau of Labor Statistics. The core consumer price index, which excludes food and energy, increased 6.6% YoY to reach a 40-year high.
Value for money: Grocery inflation in particular appears to be driving changes in behavior among high earners, to the benefit of club retailers and other value-oriented grocery stores.
Luxury buyers splurge—abroad: Despite these cost-saving measures, luxury sales remain as strong as ever, although there are signs that the strong dollar is shifting spending from the US to Europe. This could create problems for domestic luxury retailers and brands as consumers reallocate more spending to travel and overseas shopping.
The big takeaway: It’s clear that value-oriented retailers and luxury brands are some of the biggest beneficiaries of the current economic climate. That’s created difficulties for retailers that operate in the middle band and aren’t able to compete on price or prestige. This trend is unlikely to resolve anytime soon, as shoppers across the income spectrum look for ways to save money on essentials like groceries and gas.
But luxury retailers aren’t out of the woods either: Sustained demand for travel and a hugely favorable exchange rate could drive more consumers abroad to shop, hurting department stores like Macy’s and Neiman Marcus that rely on affluent shoppers to drive growth.
This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.