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(Editor's note: Updates to reflect today's earnings releases from Kohl's and Nordstrom.)
TheStreet Ratings) -- The term "trade down" became a familiar phrase in the investment lexicon after the credit crisis struck the U.S. in 2008.
Trade down, in reference to the retail industry, refers to consumers choosing lower-priced, discounted goods, as compared with higher-end items. Americans, hobbled by surging unemployment, high gasoline prices, investment losses and depressed home prices, were forced to cut back.
Teens who usually assembled a wardrobe at
Abercrombie & Fitch(ANF) were searching for back-to-school clothes at
Aeropostale(ARO). Their parents, who might have been used to dressing up at
The Gap's(GPS) Banana Republic were heading to
TJMaxx(TJX) or The Gap's Old Navy to save a few bucks.
Starbucks(SBUX) frappucinos and lattes weren't selling as well, as many stopped splurging, opting for the java jolt from their -- gasp -- household coffee maker.
Years of free-spending seemed to be a thing of the past, as many consumers, faced with mounting credit card debt, decided to change their ways. Many felt trading down would lead to a lifelong adjustment, not just a temporary change.
Yet there is evidence that Americans are ready to break out the plastic again. Major retail chains reported an 8.9% gain in April sales from a year earlier, and, according to a report by management consultant Bain & Co., global luxury sales are expected to rise 8% this year. A recent study by the New York Federal Reserve shows that credit limits increased for the first time since the third quarter of 2008.
Nordstrom(JWN - Get Report), which reported quarterly earnings after the close of the stock market today, is one example of a high-end retailer stung by the trade-down movement. In 2008, annual sales suffered their first decline in the company's history. Management moved quickly to adjust product offerings, bringing in lower-priced alternatives aimed at retaining wealthy consumers.
And the company bounced back in 2010, increasing revenue by over 12%, with same-store sales up more than 8%. Management has been focused on improving its core business via smarter inventory control, and by investing in its online business. With the planned expansion of its Nordstrom Rack "closeout" stores (19 are slated for launch this year) along with the acquisition of private "flash sale" marketplace HauteLook, Nordstrom has made it clear it wants to diversify its exposure to the highly affluent consumer.