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Affordable luxury goods market eyes a comeback

NEW YORK — Few companies were clobbered harder than Starbucks in the recession. The coffee chain with outposts on every corner came to represent all that was wrong with American businesses and shoppers: unchecked expansion, self-indulgence and mindless credit-card swiping.

But customers who swore off frivolous spending during the recession are lining up again for their $4 caffeine fix. The company’s net income nearly doubled and revenue rose 17 percent in the most recent quarter compared with a year earlier, as more Americans allowed themselves a small treat.

After seeing their retirement funds and home equity shrink severely, consumers tightened their belts in a shift some economists dubbed the New Frugality. Fortunately for the world’s largest latte purveyor and other peddlers of small luxuries, Americans have a short memory when it comes to the economy.

Affordable luxury goods like gourmet coffee, lingerie and high-end skin cream have been enjoying a comeback since the stock market began to rally in August and higher-income Americans started feeling better about their finances.

At Estee Lauder Cos., whose brands include Clinique and MAC cosmetics, CEO Fabrizio Freda says customers who traded down to drug store brands when times were tough are returning. Revenue was up 14 percent last quarter, driven by brisk sales of high-end moisturizers and eye creams.

Specialty items like the “Miraculous” push-up bra have buoyed the company that owns Victoria’s Secret and Bath and Body Works. Revenue rose 12 percent last quarter at Limited Brands Inc. as shoppers treated themselves to its stock in trade.

“People didn’t feel good about having little indulgences” in recent years, says David Palmer, an analyst with UBS Investment Research. “The Suze Orman-type talk shows were telling you to kick your Starbucks habit.”

Now, he says, austerity fatigue may be setting in.

Trading back up has raised hopes for the holiday season. Research firm ShopperTrak bumped up its holiday sales growth forecast to 3.2 percent from 2.9 percent after a solid start in November. Store owners were encouraged to see more holiday shoppers buying that little something extra for themselves over Thanksgiving weekend, a practice that had evaporated in the recession.

Still, it’s unclear whether this signals the beginning of a broader retreat from thrift. Shoppers still are making lists and, for the most part, sticking to them. The unemployment rate rose to 9.8 percent in November, holding a damper on spending in millions of households.

Frank Mangini, who lives in the Queens borough of New York, is back to making regular trips to Whole Foods, but only for specialty items he can’t find at his local supermarket.

“I was trying to lay off a little bit” during the recession, he says. Even with the economy picking up, he says he’s “trying not to overdo it.” But he’s happy to shell out for his favorite organic green tea.

After taking a drubbing during the recession, Whole Foods Market Inc. has been luring back shoppers. Revenue rose 15 percent last quarter. The company, the biggest national seller of organic and natural groceries, says shoppers are buying more higher-priced brands and trading up on pricey items like seafood, cheese and housewares.

Small splurges are unlikely to spark a broader recovery. After all, Starbucks or Whole Foods binges set shoppers back just a few extra dollars. Sales of bigger-ticket items like automobiles, designer handbags and extravagant vacations need to rebound before it can be said Americans’ frugality has ended, says Kenneth Goldstein, an economist at the Conference Board. And that’s unlikely as long as unemployment remains stuck above 9 percent. Even with car sales improving, the industry will sell 4 million fewer cars in the U.S. than it did in 2007.