COVID Consumerism: As the Going Got Tough, the Wealthy Got Shopping

The coronavirus spurred buying by all classes of Israelis. Enriched by a stock market rally, the richest embarked on a massive shopping spree

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The coronavirus pandemic brought with it an economic crisis, the collapse of businesses, big increases in unemployment and uncertainty about the future. But for the world’s richest, including Israel’s, 2020 will be remembered as a year of prosperity and increasing wealth – not because of any financial acumen but because of rising prices in the stock market and property market.

The rich didn’t just grow richer, they also spent heavily. Just like the 99%, the rich were also subject to the coronavirus restrictions that prevented them from spending their money on fancy restaurants and travel abroad. But with so much more money to spend, they fueled a rise in the tens of percent in purchases of luxury goods.

According to the Israel Tax Authority, purchases taxes paid on luxury goods last year soared 59% to 11 million shekels ($3.3 million). That includes baubles such as leather and fur garments, super-size refrigerators, televisions sets of 50 inches or more, jacuzzis, jet skis, yachts and private planes. The tax authority says that most of the increase last year came from purchases of imported yachts, big fridges and jacuzzis.

The rich didn’t buy everything they could. While overall car sales last year rose 15% in Israel, sales of Jaguars jumped 25% from 2019. Other luxury brands saw more modest increases or even declines. Porsche sales rose a mere 7% while Mercedes sales fell 5% and BMW sales plunged 31%. Land Rover sales edged just 1% higher.

But Factory 54, an apparel chain that imports designer styles, reports that sales of brands such as Yves Saint Laurent, Bottega Veneta and Dolce & Gabbana, rose by the tens of percent. The high-end furniture chain Tollman’s says its sales held steady last year, despite the lockdowns and the fact that most of its line isn’t available on its website for purchase.

Bana Mashkaot says its sales of premium wines – ones that start at 1,500 shekels a bottle – soared 34% last year from 2019. The luxury jewelry chain Padani ended 2020 with a small increase in sales, despite a near-complete absence of tourists, thanks to big increases in purchases from Israelis.

“We sold more cars than ever during the coronavirus year,” says Rami Waxman, vice president for marketing at Eastern Automobile Marketing, the Israeli importer of Jaguars and Land Rovers. Its line of vehicles range in price from 339,000 shekels to 1.5 million.

“That was an unexpected development at a time when the rest of the market was falling. The most affluent weren’t hurt much [by the coronavirus crisis], so there’s a lot of money around. People who were locked down at home want to treat themselves and buy things.”

Waxman said that between lockdowns last year, interest in off-road driving soared among members of Eastern’s customers club. “Our cars represent a lifestyle, going out into wide-open spaces. One of our customers who came to buy a car before Rosh Hashanah told me that the coronavirus had taught him that he needs to live for the here and now.”

Luxury everywhere

Credit: DENIS BALIBOUSE/רויטרס

Premium and luxury products, whose prices are considerably higher than the standard version of the same, are a subcategory in almost every consumer-product segment. The higher price is justified by the added-value, which is usually manifested by the product’s appearance, design, materials used, branding and feeling of luxury it imports to the user. They signify the owner’s deluxe lifestyle.

“Every market has a premium category because there is always someone willing to pay a higher price,” says Tamir Ben-Shahar, CEO of the market-research firm CEO of Czamanski & Ben Shahar. “The readiness to pay for a brand derives from its inherent value, its quality, the service experience and other parameters.”

The notch below premium is the middle market of products with more accessible prices and below that the discount stratum, which offers products that in many cases have no branding at all. Ben-Shahr estimates the premium segment accounts for 10% of all the market for consumer products by sales. The middle market 50% to 60% and the discount segment 30% to 40%. However, in the fashion market the middle and discount segments have been converging due to generally falling prices and fast-fashion. The premium market differentiates itself not just by eye-popping price tags but by offering shoppers a buying experience, he says.

The growth in luxury spending over the past year is especially notable against the background of economic distress. Large swathes of the economy, such as retail, tourist and hospitality, all but shut down and unemployment skyrocketed far into the double digits.

Yet, it wasn’t just the rich that were spending. According to the credit-card-payment clearing company Shva, credit card spending actually rose 3.5% last year to 335.4 billion shekels. Paced by online sales, rather than bricks-and-mortar stores, purchases of apparel and footwear increased 22.6% to 15.2 billion, housewares and furniture by 43% to 3.2 billion, and electronics and electric appliances by 23%.

For the rich and for many of the rest, the shopping spree was demand-driven: Spending so much time at home, between lockdowns and distance work and school, consumers sought to upgrade their environments to the best of their financial ability.

For the rich, that transition to a life restricted to a big villa or Tel Aviv penthouse was even more dramatic, says Ben-Shahar. The growth in their financial assets and nowhere to spend the profits created a perfect consumer storm.

“The rich spend thousands of shekels a month on restaurants, luxury vacations and entertainment. Suddenly they have tens of thousands of shekels and nothing to spend it on. That money got used to high-end products. In addition, in the difficult atmosphere of uncertainty, when nothing can be taken for granted, people wanted to compensate themselves,” he said.

Based on their experience of the past year, luxury retailers couldn’t agree more. “We experienced a big increase in the number of Israeli customers who wanted to make up for the fact that they were sitting at home all day,” says Benny Padani, owner and chairman of the namesake jewelry and watch chain that is the exclusive Israeli retailer of brands such as Cartier, Jaeger-LeCoultre, Piaget, A. Lange & Söhne, Bulgari and Breitling.

Padani said his store adjacent to the Tel Aviv Hilton in normal times derives 60% of its sales from foreign tourists, first and foremost wealthy Diaspora Jews spending the holiday in Israel. “This year they didn’t come,” he says. “But to our surprise, we were able to offset that. That happened because Israelis didn’t travel abroad either and because we launched a website, where people can easily see the prices,” he says.

Credit: Kamran Jebreili/אי־פי

“We were among the first in Europe to get approval to sell Chanel and Breitling products online, things that were not previously available. Israelis bought the highest-price items – the price of a Cartier watch, for example, can start at 10,000 shekels and reach a quarter of a million,” Padani said.

Itamar Rayn, commercial director at Factory 54, distinguishes between premium and luxury products. The former include brands like Michael Kors, Hugo Boss, Armani and Calvin Klein, whose prices run to 2,000 shekels an item. For the latter, which encompasses the Yves Saint Laurent and Dolce & Gabbana, prices can start as high as 8,000 shekels.

Internet rules

“On a macro level, it wasn’t an easy year,” says Rayn. “The internet experienced a meteoric rise, but it didn’t cover the closure of 100 [brick-and-mortar] stores. What is clear is that we saw a move toward the most expensive products. We experienced an increase in the tens of percent and online sales doubled. The biggest increase was in sales of accessories like handbags, shoes and, to a certain extent, beauty products. We had a lot of new customers.”

As to shoppers buying online abroad, Rayn said he believes Factory 54 was able to protect its turf by ensuring delivery and easy returns policies.

Shuki Schwartz, of Tollman’s, says the coronavirus year was unusual in every respect. “The furniture and home furnishings segment was at the center because people were at home a lot more and wanted to improve their surroundings,” he says. “In our business, I wouldn’t quite call the growth spectacular, but sales activity held steady despite the lockdown and even though we don’t sell on the internet. The periods between the lockdown made up for the times when we couldn’t sell at all.”

Fanny Bachar, marketing manager for the Bana Mashkaot chain, says all categories of alcohol sales rose last year. “But in the premium category, we saw an increase from lockdown to lockdown. Sales of expensive whiskey and cognac, with prices starting at 1,500 shekels a bottle, grew 34%. In the last year, we sold hundreds of bottles like these every month, while in prior years we sold at most scores,” she says.

Liquor stores benefitted from restrictions on foreign travel, which prevented Israelis from shopping at duty-free stores. Duty-free purchases in normal times make up a large share of alcohol purchases.

And that wasn’t all. “Nightclubs and bars were closed, so those who had money available spent it on quality alcohol, something they never would have thought of doing in normal times,” says Bachar. “We saw a lot of first-time customers in the premium category, who wanted to experiment and taste. During the coronavirus we really grew – we have 25 stores, three of which opened in the last year. We’ll be opening three more soon.”

Now that stores are reopening, the challenge luxury retailers say they face is to create a shopping experience online that justifies the high prices consumers are being charged.

Padani says the key is personal service. “In the world of luxury, a shop imparts the sense of the customer being a guest, not just a shopper.” Padani is trying to create that in its online sales.

“For example, if someone buys a birthday gift, the delivery person will come with the present and a bottle of wine,” he explains. “We also provide personal shoppers, who conduct Zoom conversations with customers and allow them to start a WhatsApp conversation at any time of the day. Sometimes, the personal shopper will come to the customer’s home with an item to take measurements.”

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