High-end retailers have smoked their discount-focused competitors over the last four years, and I can think of at least two reasons for that.
First, unprecedented levels of stimulus from the Fed have worked to push up the price of risk assets like stocks. This has disproportionately benefited the wealthiest 10% as they’ve always been more invested in the stock market than the average Joe.
As the Fed pumped money in the system, the wealthiest of the wealthy were cushioned from the worst of the fall. That meant they still had discretionary income to spend at luxury retailers like Tiffany & Co.
The second reason links back to demographics. The spending of high-income earners peaks about five years later than the population as a whole. So while most Americans hit their peak spending years in 2007, the top 10% has continued to spend.
These factors combined have led to a divergence in the retail arena, where the high-end luxury retailers have fared much better.
Here’s a look at the “haves” – Saks 5th Ave. (SKS) and Tiffany & Co. (TIF) – and the “have nots” – Target (TGT), Wal-Mart (WMT) and the worst of the bunch, JC Penny (JCP).
As you can see, the divide is clear. Tiffany and Saks are up 337% and 489%, respectively, from March 2009 lows. Meanwhile, JC Penney is up just 19%. Even Wal-Mart, the once unshaken stalwart of American consumerism, has gained just 61%, in total, over the last four years.
Watch for this trend to continue as long as the Fed’s policies remain accommodative. Buying up-market retailers is the best place to be while Ben Bernanke plays Robin Hood in reverse.