The economic downturn has forced American consumers to scale back their appetite for big-tickets items. . Large homes, new luxury cars, expensive vacations in exotic locales are no longer in vogue.
This is not only due to a reduce ability
to spend because of significantly lower availability of credit or insecurity about the job situation, but also due to a reluctance to be extravagant when so many others in the community are suffering economically.
However the reluctance to spend on big tickets luxury has one positive side-effect: small ticket luxury items are very much in demand. In spite of all the negative headlines, 90% of Americans still have jobs and are paying their mortgage. While they are no longer seeking gratification with
the big-items, consumers are continuing to spend on relatively more expensive small ticket items. Two standouts this week are Apple and Coach.
Apple’s Sweet Performance
Apple continues to beat estimates with iPhone sales well beyond most estimates, giving a nice push up to AT&T (T). Even Mac Sales are not taking the dip (3% year to year) to the extent which was expected, belying common wisdom that people will rush to the less expensive Windows computers during this period of belt-tightening.
However, consumers will continue to seek gratification in some form, and the well defined, easy to use products from Apple fit the bill very well. When people are skipping vacations and not buying new cars, they not only have the money but also the motivation to buy these relatively small ticket luxury items.
This is not so good news for airlines like Continental but good news
Coach: Delivers the good(ies)
Coach, another purveyor of affordable luxury items also announced better than expected results yesterday while initiating dividend payments.
Coach too benefits to the rush to less expensive goods.
Coach is adjusting its product mix to provide lower priced entry level goods allowing consumers to indulge themselves with a little bit of luxury.
Coach is not Prada; but it still works.
I believe that the affordable luxury segment of consumer discretionary equities will continue to outperform
the rest of the sector.
The target customers of this segment are relatively affluent and not distressed to the same extent as less affluent consumers.
The stock price of both Apple and Coach, have run up quite a bit, and investors should wait for a pullback before buying.