Hot tub sales cool as well-off Americans stop splashing out

Gene Gau sat with his laptop at the end of a long table in Herman Miller’s store in Manhattan’s Meatpacking District one afternoon this week. For half an hour, the design associate for the luxury furniture brand saw no customers, except for one man who briefly occupied one of its best-selling $8,000 lounge chairs and then left. 

On the other side of the street, much the same story was playing out at RH’s 90,000-square-foot furnishings flagship. Only a dozen shoppers could be found browsing the high-priced items set out over five floors of premium retail real estate. 

Across the US, companies catering to the households that can afford a $12,000 couch or $4,000 coffee table are reporting a similar phenomenon: wealthier Americans are reining in their discretionary spending.

MillerKnoll, Herman Miller’s parent company, warned this month of economic challenges including higher interest rates, low CEO and consumer confidence levels and “complications” from the regional banking crisis earlier in the year. But the concern spreads beyond furnishings. 

Shares in Leslie’s have plunged more than 40 per cent in the past week after the country’s biggest seller of swimming pools and hot tubs warned that increasingly price-sensitive customers would drag its sales well below expectations. Recreational vehicle shipments were down almost 50 per cent in the first five months of 2023. 

Such reports seem to jar with the picture of a more confident US consumer emerging from reports this summer. In July, US consumer sentiment rose for the second consecutive month, jumping to its highest level since September 2021 as the Federal Reserve’s rate-raising policies cooled inflation. 

Richer Americans have also been driving a rebound in consumer spending, with one analysis by data company Morning Consult finding that spending by middle and high income earners had increased by 23 per cent and 31 per cent respectively since a low point in March. 

“Earlier in the year, when we had the tech lay-offs and the concerns about the banking sector stability, it was that high income group that pulled back a bit more,” said Kayla Bruun, senior economist at Morning Consult. Their spending has bounced back quickly, she said, but it has gone on holidays rather than on clothing.

A reallocation of spending from goods to services has been visible across most income brackets as the US emerged from pandemic restrictions. But for wealthier Americans, that shift has meant that some of their spending has moved from the boutiques of Manhattan to those in European cities like Milan, said Federica Levato, senior partner at Bain & Company, the consultancy.

“Europe now is full of American tourists,” she said: “The American customer is buying elsewhere.” 

Higher-income Americans’ spending on hotels and airfares has roared upwards in recent months, Morning Consult found, outpacing their spending on other things.

The wealthy can afford higher airfares, “but even the wealthy to a certain extent have limited budgets”, said Neil Saunders, managing director of GlobalData Retail: “Inflation is beginning to take its toll” on a previously resilient section of consumers. 

Households earning more than $100,000 per year are more insulated from inflation than most, Bruun noted, “but they still have to buy gas”. Morning Consult’s surveys have shown that even in this income bracket, the number of Americans saying they are able to add to their savings has been falling since mid-2021.

Companies including RH have pointed to a luxury housing market that has been weakened by rising interest rates. Sales of items such as hot tubs “are tied to housing activity and housing construction and we’ve seen a pull back in the US,” observed Lydia Boussour, Senior Economist at EY-Parthenon. Housing starts fell by 8 per cent in June from the previous month.

The impact is being felt from high-end electronics retailers to top department stores. Bang & Olufsen, whose speaker systems can cost as much as $120,000, said this month that economic uncertainty was making retail partners more cautious about replenishing their inventory.

That wariness was visible in department stores, Saunders said. “They’re buying a good level of inventory but they are really being careful as to where they place their bets.” 

Higher-end retailers such as Coach and Nordstrom were reluctant to jeopardise their brands by discounting too aggressively, Saunders added, but they were making sure to make more affordable items available “so that when people come into the store, maybe they walk out buying a wallet or something reasonably small rather than the handbag”.

Companies that did well early in the pandemic are now finding it hard to outstrip their earlier success. Sales of items for the home “had a fantastic boom in the pandemic years and some demand was just pulled forward”, Saunders said, as consumers spent their extra savings upgrading properties many of them started working from for the first time. 

The pandemic move towards remote work drove a 60 per cent jump in MillerKnoll’s revenues for the year to May 2022, for example. But “since 2022, the sales have been going down in comparison,” said Gau in Herman Miller’s quiet Manhattan store. “The recent quarters have been slow, and this summer is less busy than the previous one,” he added.

That factor, coupled with higher rates, elevated borrowing costs and more limited access to credit, leads Boussour to believe that the pullback in wealthier Americans’ discretionary spending will last into 2024 

“These are long-lasting items,” she said. “You can only have one swimming pool in your backyard.”