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Shoppers pass in front of a Saks Inc. department store in February. Unseasonably warmer weather probably cut demand for winter merchandise and may hurt fourth-quarter sales for U.S. retailers.

‘Henrys’ feeling middle class

‘High earner’ cohort putting the brakes on spending

– Mac McKay entered this year ready to spend after sales at his flower shop in Arlington, Va., rebounded.

He planned to take his first vacation since the recession and start a $30,000 kitchen renovation.

Those plans are dead.

“We’ve cut back on a lot of things we used to do,” said McKay, 62, who watched revenue at Garden City Florist sink 15 percent this year. “You can see people tightening. They were more free with their money last year.”

McKay is what retail consultants call a Henry: High Earner Not Rich Yet. This cohort has helped a gamut of retailers from Target to Saks get through a spotty U.S. recovery.

Now, as the global economy slows, the European debt crisis grows and U.S. unemployment plateaus, Henrys are tapping the brakes after just becoming comfortable spending again, said Pam Danziger, the president of Unity Marketing.

“They are the heavy-lifters of the consumer economy,” said Danziger, whose consulting firm is based in Stevens, Pa. If they become more cautious, it “would be very bad for the economy.”

There are signs that consumers have already slowed down. U.S. retail sales fell 0.2 percent in May, following a similar decline in April, according to the Commerce Department. Sales excluding automobiles slumped by the most in two years.

Those results followed disappointing annual profit forecasts from a range of consumer companies. Procter & Gamble, Tiffany, Lowe’s and Tempur-Pedic International all cut projections, while predictions from Lululemon Athletica, Limited Brands, Macy’s and Clorox trailed analysts’ estimates.

Henrys earn between $100,000 and $250,000 a year and account for 21 million U.S. households, according to Danziger. They represent 90 percent of affluent consumers, which are households in the top 20 percent by income that account for 40 percent of consumer spending.

They are influential because they interact with a wide range of retail brands, Danziger said. They’re regular customers at such “accessible” luxury purveyors as Coach, Tiffany and Restoration Hardware as well as premium mass brands like Ann Taylor, Gap’s Banana Republic and Williams-Sonoma.

They splurge on pricier names like Chanel and Hermes, and they shop at discounters.

In 2010, retailers didn’t need Henrys to come roaring back. The demographic above them, the so-called ultra-affluents who belong to the top 2 percent of earners, went shopping again after the 2009 recession forced even them to cut back.

Henrys followed last year as the economy appeared to improve and helped bring another solid year of retail sales growth. Their confidence might not last.

Although they have discretionary income to spend, they can be fickle, according to Michael McNamara, vice president at Mastercard Advisors SpendingPulse, which tracks consumer spending. Their desire to make purchases hinges on how rich they think they are – the so- called wealth effect – and there are a lot of reasons they might be feeling more middle-class.

“They don’t have a layer of wealth that’s permanent and insulating them, so they are much more susceptible” to swings in confidence, McNamara said. “The ultra-rich are insulated from most of the variables going on right now.”

Worrisome headlines, stock market performance and home values have much more sway on Henrys’ spending habits. Many are also small-business owners and see shifts in the economy first. McKay, whose shop is in one of the wealthiest counties in the country, said a top customer went from spending $2,000 on Mother’s Day to less than half that. Another longtime client recently lost his job as a rocket scientist.

“Every time you see someone, they tell you these horror stories about their company going down,” McKay said. “Everywhere you look, there are layoffs. It has everyone spooked.”

The not-rich-yets aren’t the only ones getting jittery. Liz McDermott runs an Atlanta interior design business and pulls in six figures a year, placing her in the ultra-affluent category.

She just passed on a $4,000 Oscar de la Renta dress because she has put herself on a budget.

“I don’t see me throwing around the kind of money I used to for a while,” said McDermott, 47, who says she wouldn’t have thought twice about buying the gown six months ago. “I’m starting to save more.”

That has left many companies relying on the wealthiest of the wealthy for growth.

Sahil Bhasin runs Coomi, a jeweler that sells $20,000 necklaces crafted from 2,000-year-old Roman artifacts. Two of his biggest customers, Neiman Marcus Group Inc. and Saks, asked him to provide lower-priced pieces to attract Henrys.

Last year, he obliged them and introduced pieces below $10,000. His $5,000 earrings aren’t selling. Yet he can’t keep $58,000 gold bracelets in stock.

“It’s definitely the ultra-rich” buying our jewelry, said Bhasin, whose company is based in Secaucus, N.J. The market below that has been tough because “that customer isn’t shopping.”

Hugh Bate has also witnessed Henrys’ retreat at Chariots of Palm Beach, the car dealership he runs in West Palm Beach, Fla. Moving a Morgan Aero SuperSport for $190,000 has never been easier while used Mercedes and Jaguars a quarter the price aren’t selling.

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