By Sandra M. Jones

RISMEDIA, July 7, 2009-(MCT)-When do you know that the economy is on the mend? When the wealthy start spending again. And the rich aren’t expected to start digging into their Birkin bags anytime soon.

The luxury market, historically resilient to economic downturns, is forecast to drop an unprecedented 10 percent this year, according to a June report from Bain & Co. The Boston-based firm predicts purveyors of luxury goods won’t experience a full recovery until 2012.

Keeping an eye on the spending of the rich is a favorite American pastime. But it is also key to the economic recovery, said Ron Kurtz, president of the American Affluence Research Center.

The richest 10 percent of U.S. households account for as much as 50 percent of consumer spending, according to the center’s calculations, based on Federal Reserve Board data. Consumer spending, in turn, accounts for about 70 percent of gross domestic product.

“The affluent market is a leading indicator of what’s to come,” said Kurtz. “Given their losses in the value of their homes, investment and savings that they have experienced over the past two years, the affluent are likely to be conservative spenders until these losses have been largely recovered.”

The situation is prompting drastic measures in retailing’s upper stratosphere.

Neiman Marcus announced recently that it plans to stock more lower-priced designer goods and reduce hours at half its stores. Barneys New York, the temple of fashion, turned to its Dubai parent Istithmar World Capital for a cash infusion in April to make sure its shelves are stocked this fall. Saks Fifth Avenue is considering shutting some stores.

And even the New York Yankees lowered by half the $2,500 ticket price for some premium seats shortly after its new stadium opened this spring.

One school of thought is the notion that well-heeled shoppers are holding back because they are self-conscious about their wealth in the midst of a deep recession, a trend pundits label “luxury shame.”

The American Affluence Research Center found that 90 percent of the most affluent households have always avoided ostentatious consumption and are “careful spenders and aggressive savers.” Their spending habits aren’t expected to change anytime soon.

The center’s spring 2009 survey found that 68 percent of the respondents have no plans to make any of the following major expenditures in the next 12 months: a car, cruise, boat, new home, vacation home or a home remodel project. That is a record high, as well as a marked jump from 53 percent in spring 2008 and 36 percent in spring 2005.

While the recession was well under way in 2008, luxury spending held up until the financial markets collapsed last fall. The quick disappearance of investment bank Lehman Brothers and the financial turmoil that followed exposed the fragility of much of the wealth in the country. The speed at which everything from stocks to homes to complex financial instruments lost significant value shook the luxury world down to the red soles of its Christian Louboutins.

Now, glitzy shopping streets from Madison Avenue to Rodeo Drive to Chicago’s Oak Street are dotted with empty storefronts and sale signs.

“When a billionaire says, ‘Is this expensive?’ I don’t know how to answer,” said Sara Albrecht, owner of Oak Street designer boutique Ultimo, which carries top designers such as Michael Kors and Vera Wang. Her store was among many on Oak Street that had sale signs in their windows last week, including Kate Spade, Paul Stewart, Lucca and Yves Saint Laurent.

“Everybody comes in and explains why they aren’t spending any money,” Albrecht said. “They saw how quickly things turned and it’s still in the back of their minds. It’s like people who grew up in the Depression. Overnight the country got a little bit of that mentality ingrained in them. A lot of them will be fine, but if you’ve never had that shock, you don’t know.”

Luxury became so accessible in the past decade that it lost much of its meaning, said Richard Baker, chief executive of Premium Knowledge Group, a Dallas-based luxury consulting firm. Anyone could carry a $2,300 Gucci handbag by putting it on a credit card or, better yet, renting from a new crop of online luxury rental merchants. Jimmy Choo and Yves Saint Laurent opened outlet stores. And flying first class was no longer a privilege.

“I think there was too much of everything, and I feel like the whole industry had to take a laxative,” designer Diane von Furstenberg told Women’s Wear Daily in May.

Now there’s a growing effort among designer firms to ditch the word “luxury” and return to their roots of providing craftsmanship and service, Baker said. In the interim, some luxury brands are expected to disappear or shift down-market.

When the luxury recovery arrives, there will be fewer true luxury firms around, Baker predicted.

“Those brands that have historic credibility will try to become more like Hermes, which would burn unsold merchandise rather than show up in a factory store someplace,” Baker said.

Bain predicts a gradual return of global luxury sales: up only 1 percent in 2010, 4 percent in 2011 and 7.5 percent in 2012 from the year-earlier periods. That would put the luxury market by 2012 at the 2007 level of about 170 million euros, or roughly $240 billion dollars at today’s exchange rate, the firm said.

“Listen, we don’t know what our customer is ultimately going to do until she comes into the store and starts to shop again at a meaningful level,” said Burt Tansky, Neiman Marcus Inc.’s president and CEO, during the retailer’s third-quarter earnings call last week.

“But our opinion is that the recovery, when it comes . . . will come slowly. It will not be the same break out of the gates as we had seen in the past.”

©2009, Chicago Tribune.
Distributed by McClatchy-Tribune Information Services.