Premium and affordable products are having a moment

0:01NPR.

0:11Hey, Robert, what are you reading there? Oh, I'm looking for some new clothes. I want to improve my fit. Okay, I think the kids call it a glow-up. But I see it's not a fashion magazine that you're holding there. It's a very unfashionable beige book. The beige book. Our favorite obscure government report, sure. But the idea of the Beige Book is to report on current economic conditions. And if you look hard enough, there is indeed a lot of interesting anecdotes in here about clothing and accessories and the retail business. And you're sure you won't just end up with more beige khakis and tan shirts?

0:47I do work in radio, so probably.

0:53It's the Beigy Awards! Our eight times a year salute to the art and science of telling stories about the economy. I'm Robert Smith. And I'm Adrian Ma. The devil may wear Prada, but we take our fashion tips from the economists. And they're seeing some worrying trends in the consumer economy. Even in clothing for the smallest fashionistas among us, babies. Put on that tiny tux, grab your fanciest rattle. Just don't drool all over the red carpet, please. This message comes from LinkedIn. Owning a small business comes with a lot of challenges and means juggling multiple things at once. It's even harder to do it efficiently.

1:33But with LinkedIn, you get all the tools you need to grow in one place. With LinkedIn, simplify your sales, marketing, and hiring so that you can actually run your small business. Learn more at linkedin.com slash indicator show. Support for NPR and the following message come from Edward Jones, A rich life isn't always a straight line. Unexpected turns can bring new possibilities. With a hundred years of experience navigating ups and downs, Edward Jones can help guide you. Let's find your rich together. Edward Jones, member SIPC. This message comes from Capella University. You know that feeling when there's a spark building inside you, that you were meant for more?

2:16That's your own drive pushing you towards what's next. Capella University gets that. With their FlexPath learning format, you can set the pace and earn your degree without putting life on pause. You've built experience and know what you're capable of. Now, this is your time to turn that momentum into more. The only real question is, what can't you do? Learn more at capella.edu. It's always good to remind everyone how this award show works. There are 12 regional banks in the Federal Reserve System. Each one studies their local economy and brings back little stories of what they see. They publish them in the document known as the Beige Book, and we give awards to the best stories.

2:58We like to start with the first runner-up, and this one comes from the Richmond Fed. Quote, retailers gave indication of consumer price sensitivity and lackluster discretionary spending, with a jeweler in Williamsburg, Virginia, noting, if they can save a dollar and get free shipping, they're shopping online. It's been my worst year so far. I mean, a dollar and free shipping is tempting. For a lot of people. Keep this jewelry anecdote in mind because we will come back to the challenges of online shopping later on with our winning entry. Okay, so let's do it. The envelope, please. And the winner of the Beigie Award is...

3:40The Atlanta Fed. Coming to the stage is Kevin Dancy, a vice president of the Atlanta Fed. We spoke on April 17th. Congratulations, Kevin. Thanks, Robert. I appreciate it. You said, are you new at the Fed? So, no, I'm not new at the Fed, the system. I am new at the Atlanta Fed. I've been in three districts, Dallas Fed, Richmond Fed, and now at the Atlanta Fed for three years. So, who writes the best beige book of the three? Atlanta Fed, by far. There you go. So, Kevin, you've won this Beigie Award for an entry about something we don't often cover here at The Indicator, baby clothes. And here, I'll read the entry.

4:19Quote, a baby apparel manufacturer reported solid demand for both its low - and high-end clothing and accessories, while sales for middle-tier products were flat, suggesting a barbell effect. I love the barbell effect. It's a finance term that means the market for a product gets split into two extremes. You have premium products on one end and budget products on the other end. Kevin, how does this play out these days? So when you think about demand, especially amongst discretionary spend goods, you typically think that, hey, it's going to depend on price. But what we're seeing is that higher-end consumers are continuing to spend pretty much uninterrupted and unimpacted by the economic shocks that are going on in the current environment.

5:04But we're seeing trading down from folks that are middle to lower income. So what we're seeing is folks that are looking for value are pushing up that lower end of the barbell and pushing up demand while you're still seeing strong spend on the upper end. So when it comes to baby clothes, I'm picturing the barbell being on one side, like a cheap onesie that might say, I heart Atlanta or something like that. and on the other end of the barbell, a baby tuxedo, like black tie, fine wool. I wouldn't even go to that extreme. So think about just two t-shirts. You might be able to secure a t-shirt for cents on the dollar from an Asian or Eastern Asia country.

5:40However, that same shirt might cost more from a France or an Italy or from another important territory. This barbell effect can be found in all kinds of places, by the way, even on our own personal lives. So for instance, our editor, Kate Concanon, was talking about how she buys pretty basic clothing, but likes to dress it up with a Prada belt or a Covelli scarf. So that is what you would call barbell fashion. Yeah, I do barbell drinking. I buy pretty cheap beer and wine, but sometimes I do get a very expensive scotch. Kevin? I'm a shoe man, so the suit might be affordable, but the shoe will always be something to really look at and really remark about.

6:20We wanted to see if we could find this baby barbell effect in action. So I went to my local children's clothing store here in Brooklyn. It's called Owl Tree.

6:32Hey, do you have baby tuxedos? We have baby tuxedos. No, really? We do. They're not necessarily high-end, but they're... Adorable. They're adorable. Molly Patrick Epstein owns Owl Tree here in the Carroll Gardens neighborhood and another one in Park Slope. They're mostly a consignment store. And even here, she says, you can see a bit of the barbell buying behavior. I asked for the highest end thing in the store. Honestly, some of the things that we have that are most expensive are some of our collectible sneakers. I didn't know that little kids' sneakers could be collectible. I know. Well, sometimes you get like a limited edition issue from their favorite basketball player.

7:09Some of these shoes, which come out original price at like$200, will sell here for like$60,$70,$80. All right. Well, so show me the cheapest, most basic thing you have. So we carry a lot of Old Navy and Gap that will sell for$5 shorts. Which she can sell that cheap because they are secondhand. As I was talking to Molly, she sort of mentioned that she has an MBA from Harvard. And before she started this store, worked for middle-priced brands in the fashion industry, like Gap and J.Crew and Coach. The problem, she says, isn't necessarily that people don't have money to buy mid-priced goods. it's that e-commerce has put pressure on those brands to get cheaper all the time.

7:50With the rise of free shipping and Amazon, the customer these days is trained in the world of e-commerce to wait for promotions. So smart consumers know if they just wait a little bit on Gap, they can probably get everything like 50 % off. And they do wait. And they do wait. The customer's just too smart now and they're just too trained. And so retailers to make money and survive need to source more inexpensively. They're just looking for cheaper and cheaper goods. There is another strategy, she says. Some brands will opt out of the crowded race to the bottom and move closer to the other end of the barbell, become more of a premium brand.

8:29Molly used to work for J.Crew, for instance. So they've gone the other direction, which is to say, we're going to charge more for our denim to be above$50, which is a lot in kids. Of course, Molly runs a consignment shop now, so expensive or cheap, it will probably end up here at Owltree eventually. Interesting. So it's both the customers and the retailers feeling the pressure to pick one side or other of the barbell. Gotta pick your lane. Thanks again to the Atlanta Fed and Kevin Dancy for alerting us to the baby clothes drama. Thanks, Kevin. Thank you once again, Robert. This is an extreme honor, and we will wear it well.

9:05Well, speaking of wearing it well, people can't see you. So what fancy shoes are you wearing for this big ceremony? Oh, I've got on a very nice Louboutin. Really? Okay. I love it. I can imagine it right now. This episode was produced by Corey Bridges and engineered by Jimmy Keely. It was fact-checked by Sierra Juarez. Cade and Cannon is our editor, and The Indicator is a production of NPR.

9:39This message comes from Allianz Travel Insurance. A surprise road closure made you miss your cruise departure. Now your ship has sailed. Luckily, travel delay protection can help keep your plans afloat. Learn more at AllianzTravelInsurance.com. This message comes from Capella University. That spark you feel? That's your drive for more. Capella University's FlexPath Learning Format lets you earn your degree at your pace. Without putting life on pause, learn more at capella.edu.