• by Sarah Mahoney  @mahoney_sarah, April 6, 2009

With Neiman Marcus singing the blues and Wal-Mart Stores raking in the green, it's easy to imagine that affluent consumers are feeling especially stung by the recession and may be less inclined to start spending again. But some experts are convinced that shoppers at just about every demographic level will be happy to cast off their frugalista duds as soon as it feels safe to spend again. We asked Michael J. Silverstein, senior partner at The Boston Consulting Group in Chicago and author of Treasure Hunt: Inside the Mind of the New Consumer (Penguin) to weigh in.

Q: We've heard so much about the new frugality. Do you think it's permanent?

A: Consumer behavior and spending patterns have changed dramatically in the last year. This is the year of the Treasure Hunt -- at all levels of income, consumers have cut back on spending and increased savings rates. The frugality is externally imposed. Americans still like to spend, feel good, and feel rich. What they have right now is a good dose of fear. They read about bank closings, layoffs, and declining real-estate prices. They are scared to open their 401(k) envelopes. They think their jobs and pensions are at risk. They regret having so much debt.

Sometime in the next seven quarters, however, we will see a turn. When we have rising real incomes again, consumers will open up their wallets. They will buy better-quality goods. They will go on vacations and stay in better-quality hotels. Once again, they will spend more than $20 on a bottle and visit luxury car dealers.

Our research says consumers are trading up now. It used to be in five or ten categories -- now it's in one or two. Many consumers continue to trade up in things like produce, meat, personal computers and items for their home.

Q: Has this recession -- with its sharp downturn in stock portfolios and real-estate holdings -- been harder on people with more money?

A: We are not yet reinventing class. There are fewer high-net worth individuals, and the count of paper millionaires is down. But relative affluence is the same. In fact, this recession has been most painful for the people who can afford it the least. The poor have been knocked to the ground. They have suffered the highest level of unemployment. They have no savings. They are getting by on basics. That's where the foreclosures have been highest. While unemployment is high at over 8%, the unemployment rate for college graduates is 4%.

Q: Will the nesting trend spur spending?

A: People are spending more time at home. They are certainly cooking more. They're watching more television. But so far, they have not spent at a higher rate on their homes. When the price indexes stabilize, they may very well start investing again. Now, they have put their home on hold.

Q: What about automotive, where spending patterns have changed so radically?

A: Cars are one of the easiest categories to defer -- that's why they were such an early casualty in the consumer spending collapse. We can all figure out a way to drive our current vehicles for one more year. But at some point, the cycle of repair cost and appearance will force people back into the showrooms.

Q: What are the more lasting changes in the luxury market?

A: The classic narrow definition of luxury categories has not changed. What has changed is the marginal purchaser, so that the upper-middle-class consumer is down dramatically. The upper-class consumer has the luxury item already -- luxury goods have a long shelf life.

Q: What should companies be focused on, while consumers continue to hold back on spending?

A: Retailers are right now working with their manufacturing partners to deliver higher value. They are working to provide innovations that build in better materials, better fabrication, better design. If you sit around and fail to innovate, you will be commoditized. Consumers will go numb.

Q: What will spark a return to spending?

A: When the consumer starts to become secure again, we will have women buying fashion accessories, people investing against their home, and planning expensive vacations. Trading up is not dead.