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Scrimp and splurge arrives

With the recent high inflation, we're seeing consumers returning to a buying behavior that in the past was called 'trading up/trading down' or 'trading up to affordable luxury.' Today's consumers are cutting back in areas that are unimportant to them so they can trade up to luxury goods and experiences in areas that are emotionally comforting.

In his 2001 book Bobos in Paradise, David Brooks first identified the trend among what he called the bohemian bourgeois class. Then, in 2003, Michael J. Silverstein and Neil Fiske picked up where Brooks left off with bobos in their book, Trading Up: Why Consumers Want Luxury Goods. What Trading Up brought to light was the phenomena of consumers trading up by purchasing higher-priced quality goods and services that are important to them while at the same time trading down to low-cost alternatives such as generic products and services that are not important to them. Silverstein cites the example: "a high school teacher may save up to buy a new BMW 300 series convertible but choose the cheapest socks and t-shirts available at Walmart." Trading up to affordable luxury is responsible for the success of a whole category of companies, including Starbucks, Lexus, Williams-Sonoma, Panera Bread, Callaway Golf, PF Chang's China Bistro, and Restoration Hardware.

This time a different twist on the phenomenon has surfaced called 'scrimp and splurge.' Consumers stung by inflation-driven high prices are cutting back on everyday purchases while treating themselves to a few big-ticket items. The Wall Street Journal cites the example of shopping for staples at the dollar store while dressed in Gucci sneakers.

Economists say that after more than a year of high inflation, consumers are exhausted by all the money-saving micro-decisions they have had to make. Those with a little wiggle room in their budgets are splurging on experiences and designer products while drastically cutting back on spending elsewhere. According to economists, consumers are attempting to reclaim agency over their finances. Economists say they are splurging to remind themselves they still lead a good life.

Dr. Michael Liersch, head of advice and planning at Wells Fargo, says the slowdown in economic growth and still-high inflation are fueling these types of spending decisions that feel good, even if not especially budget-friendly.

Evidence of scrimp and splurge is a Bain & Co report that the luxury market has been explosive in 2022 despite declining overall retail sales.

Dr. Liersch of Wells Fargo isn't surprised that luxury is surging at the same time people need to spend more on essentials. He says people are thinking, "I get to put that luxury item on and remember life is going to be OK. Things are going to change in the future."

Implications for location-based entertainment

Location-based entertainment venues can take advantage of this trend if they can position themselves with consumers as an affordable opportunity to splurge on an enjoyable experience with family or friends.

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