Shoppers' treat: Lattes, lacy bras

NEW YORK - Few companies were clobbered harder during the recession than Starbucks. 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 now customers who swore off frivolous spending during the downturn are lining up again for their $4 caffeine fix. The company's net income nearly doubled and revenue rose 17 percent in its 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 chain and other peddlers of small luxuries, Americans have a short memory when it comes to the economy.

Affordable luxury goods such as 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. The Dow Jones industrial average is up 14 percent since then, a gain that makes many Americans feel wealthier.

"When people feel their household wealth rising, they're more confident and that has a dramatic impact on consumption," says Chris Christopher, an economist with IHS Global Insight.

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.

But at Estee Lauder Cos., whose brands include Clinique and MAC cosmetics, chief executive officer 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.

"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.

For Michele Burkhammer, a nurse clinician for the Montgomery County Fire and Rescue Service in Rockville, Md., austerity was the only option after she was furloughed and her husband lost his job. She started buying groceries at Wal-Mart and pared her list to the essentials.

These days, her husband is back to work, and she's fed up with pinching pennies. She still doesn't splurge on herself, but she recently bought Ralph Lauren khakis and other high-end items for her 3-year-old son. She's also returning to upscale and organic grocers.

"Shopping is starting to be enjoyable again," Burkhammer says.