Simple Luxuries Thrive in Depressed Economy
Beer, chocolate and video games. People find comfort on a tight budget with these recession-proof products.
They wander in on their lunch breaks and after work, looking for a treat to lift their spirits and elevate their days.
Customers may only buy a single truffle when they visit Davidson Chocolate, which sells handmade confections made on-site in Davidson, N.C. Still, that's led to a steady increase in sales for Sue Elliott, her husband and her son since they opened the shop a year ago.
"People will come in and say, 'Our office really needs some chocolate today,'" Elliott says. "Or people will come in and buy just a couple pieces, and that really lifts their day up. It has that sense of luxury about it, like they're treating themselves."
Chocolate is one of several affordable luxuries--non-necessities consumers continue to buy as they trim their budget elsewhere--that are thriving despite the economic downturn, according to market analysts and entrepreneurs.
For consumers, affordable luxuries represent a way to live the good life on a shoestring. For entrepreneurs, they represent an opportunity to profit, even as other industries falter. Below are just a few examples.
As many businesses downsize, New Belgium Brewing Co. is on a nationwide tear. The Fort Collins, Colo., microbrewery has expanded to several new states in the past year, and is forecasting 10 percent growth this year thanks to growth in those new markets. Craft beer is the fastest-growing sector of the beer industry, according to the Brewers Association, a nonprofit organization which tabulates industry growth data for U.S. breweries. But since craft beer accounts for only 4 percent of the total beer market, there's plenty of room for growth, says New Belgium spokesman Bryan Simpson.
"Beer is a great social and cultural connector," Simpson says. "It provides an opportunity for people to still treat themselves well when they're cutting back in other areas."
Harry Balzer, vice president of the NPD group, says microbreweries offer "new versions of things we already buy," the key to profiting in a down economy, when consumers are less likely to shell out cash for items they've never bought before.
Industry-wide, craft-beer sales were up 5.8 percent by volume and 10.5 percent in dollars between November 2007 and November 2008, according to the Brewers Association.
Davidson Chocolate isn't the only chocolate company to enjoy a recent boom in business. Industry giants like Hershey's and Cadbury's have also reported increased profits.
Elliott says Davidson's success stems from keeping the focus on quality, and by creating an atmosphere of luxury at an affordable price point.
"If people come to really appreciate the quality of your product, they will see paying $1.35 for a truffle as a good value rather than a splurge," she says.
As soon as customers walk into Davidson Chocolate, they are greeted by a staff member--and by the aroma of the on-site chocolate production.
"People just stand there and smell for a few minutes," Elliott says.
Then, whether the customer is buying three pounds of chocolate or three pieces, Elliott says owners and staff strive to create "the feeling of, 'Oh, can we wrap your gift, or get you a gift card, or do anything else to make you feel special?'"
"People have to go grocery shopping," Elliott says. "They don't have to come into the store. We want them to feel like they're being treated."
Blizzard Entertainment launched its newest expansion of World of Warcraft in November, when Americans were reeling from news about job losses and plummeting 401Ks. Still, customers flocked to stores the day of its release, buying 2.8 million copies in 24 hours to make it the fastest-selling PC game ever, says Mike Morhaime, president and founder of Blizzard Entertainment.
That success reflects an industry-wide trend, according to the market research group DFC Intelligence, which is forecasting video game revenue to reach $57 billion this year.
Mark Cottam, CEO of MumboJumbo, which publishes, develops and markets "casual games," says his company has enjoyed increases in sales and profits recently. He says casual games, or simple games marketed to the general population, have reached consumers who don't play traditional video games, but are looking for an inexpensive way to unwind.
"People may hold off on a new bicycle or motorcycle or car, but regardless of what's going on, they still want to find a way to turn off their brain and relax," Cottam says. "Games provide that at an affordable price point."
Morhaime says new applications for the iPhone and other advances in online gaming make the industry ripe for startups who can find a new niche to fill.
"Online gaming is still young, so there really are a lot of opportunities right now," Morhaime says.
Overall, apparel sales have plummeted recently, with a decline of 6.3 percent for the three months ending with February 2009, according to the NPD group, which defines that time slot as "a key period of the economic downturn." Jeans, however, saw a 2.3 percent increase for the period, with "premium jeans" costing more than $100 per pair seeing a 17 percent increase for 2008, according to the NPD group.
True Religion CEO Jeffrey Lubell says that trend has played out for his company, which reported a 15.4 increase in net sales for the first six months of 2009, plus increased profits for the same period of time. Lubell says the spike in sales came even as the company hiked up its prices for women's and men's jeans to $258 and $284 respectively--a $17 increase for women and $12 for men.
Consumers see jeans as "a value purchase in a tough economy," Lubell says. "Jeans are not the kind of thing you wear once, like a formal dress. They never go out of style and only get better with time, so consumers will continue to pay top dollar for them."
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