This “New Frugal” is now a sharp reality as evidenced by recent earnings announcements, notably the blowout numbers from Michael Kors (KORS).
Make no mistake about it, the U.S. consumer who has the money, is spending it on great brands, great service and great quality. Retailers like Michael Kors are benefiting from it.
What exactly is the “New Frugal?” Buy one Coach (COH) black leather backpack instead of four graduation presents. Get that Ralph Lauren (RL) blazer – at the outlet store, or on sale at Macys (M), but get the high quality, one piece versus the cheap suit at Target (TGT). Buy your shoes at Nordstrom (JWN), where you can always take them back if there is a problem. And did you know you can get a baby gift for under $50 at Tiffany’s (TIF)? They still wrap it in that distinctive robin’s egg blue box.
This movement to quality even applies to sporting goods, as evidenced by the success of Dick’s Sporting Goods (DKS).
And don’t forget Apple (AAPL), where throughout the Great Recession, iPad and iPhone sales soared.
Still skeptical about “buy less with more?” Take a look at these “New Frugal” stock prices over the last five years:
Does this success mean the run of the “New Frugal” stocks is over?
This is a secular change in shopping habits among American consumers. This shift in consumption preferences is complemented by a return of higher-income income households to retailers in the mall.
According to two economists, Steven Fazzari of Washington University and Barry Cynamon of the Federal Reserve, the top earners are now contributing more to overall spending. For the last year with data, 2012, the 5% of spenders accounted for 38% of U.S .domestic consumption; in 1995, this number was 28%.
What does this mean for investors? Your focus needs to be on the luxury-goods providers who also touch the middle class, generating revenue from the top 5% who are flush and middle-class shoppers being frugal and focused in their spending.
The recent downturn in the market has created a window of opportunity on these names, with Tiffany’s finding strong support at $80, Apple at $500 and Nordstrom at $55.
Buy less with more.