Remember “Richistan,” that country of the superwealthy described last year by author Robert Frank? Well, now call it “Thriftistan.”
A stream of dismal economic news, from corporate bankruptcies and mass layoffs to the depressed stock market, has chastened even the most dedicated consumer. The rallying cry “Shop till you drop” has been replaced by “Save till things rise.”
“Conspicuous consumption is over and conscious consumption is starting,” said futurist Faith Popcorn, noting that lavish spending was becoming unpopular in some circles even before the economy went south. “I want the ethical biography of the company” [I’m buying a product from]. What does it support, who is the chairman? The consumer is turning into a citizen.”
Especially troubling to retailers is that even consumers at the top of the economic food chain — the small percentage of superwealthy that account for a disproportionate amount of dollars spent and whom Frank profiled in his book “Richistan: A Journey Through the American Wealth Boom” a mere 18 months ago — are pulling back. Ultra affluents, who represent the top 2 percent of U.S. households with incomes of $250,000 and above, have cut their spending on luxuries by nearly 20 percent on a year-to-date basis, according to a luxury consumer tracking survey by Unity Marketing conducted in October.
“The results of the survey challenge the conventional wisdom that the most affluent are immune to economic ups and downs,” said Pamela Danziger, president of Unity.
Unlike the go-go Eighties and go-more Nineties — times of freewheeling spending followed by periods of financial sobriety — today’s self-restraint may reflect a more lasting shift in attitude, according to experts. The very affluent may still be spending money, but they’re buying things that represent quality, craftsmanship and understated luxury, rather than flamboyant fashion and overwrought accessories. Aspirational consumers, meanwhile, are barely buying anything.
Both customer groups should be a cause for concern for retailers. The former, because they have more pressing needs than acquiring more material possessions, and the latter, who no longer feel the need to dress to impress. (One of the telltale signs that conspicuous consumption may be on the wane is anecdotal evidence that high-end shoemakers and seamstresses are busier resoling evening shoes and repairing the beading on gowns that the wealthy would have typically replaced.)
Popcorn predicted a possible backlash to designer fashion. “People might rip the labels out of their Armanis,” she said. “They don’t want conspicuous anything. Luxury brands will have to drop their prices. In a way, you’re out from under the thumb of the people that make the trends.”
There are signs of lower-key consumption everywhere — from Net-a-porter offering customers plain packaging with no logo to the steep fall in same-store sales at Neiman Marcus, Saks Fifth Avenue and other high-end stores.
“In the midst of this financial crisis and the populist backlash against unearned financial services wealth, many wealthy consumers are a bit confused and feeling a tad defensive about luxury, even if they have money to spend,” agreed Milton Pedraza, chief executive officer of the Luxury Institute. Pedraza said luxury consumers will opt for classic products that are “unique and exclusive, have exquisite artistic design, craftsmanship and quality and are delivered with impeccable service. They’re not going to wear anything flashy because it’s in bad taste to flaunt.”
Logos are becoming less important, said Pedraza, noting that customers are starting to ask for unmarked brands. “People want very understated products,” he said. “They want to consume privately. If 85 percent of the people with a net wealth of $5 million or more are self-made, then it’s all new money. While people with new money tend to define themselves by their labels and what they spend, the rules are changing. People want to buy more classic luxury at better prices. They don’t want to be the people who are showing off.”
Consumers, it seems, would rather purchase a $9,000 Hermès Kelly bag in the color of their choice, secure in the knowledge that it will last for 25 years and never go out of style. “We’re sensing that consumers want to buy something that’s enduring,” said Robert Chavez, president and ceo of Hermès USA. “We don’t consider ourselves a fashion house. We’re really a house of craftsmanship and quality. Instead of buying three or four handbags or three or four of something else, customers want the one thing that’s going to last a long time. The Kelly and Birkin are still as popular as ever.”
That said, Chavez added: “People are absolutely buying less. In October, we started to see a slowdown and it’s continued in November. But even with the slowdown in the fourth quarter, we should end up with a good year overall.”
A recent survey by Elite Traveler and Prince Associates of 440 high-wealth families found that 76 percent of households with a net worth of $1 million to $10 million said they will spend less between now and the end of the year on luxury items. Just less than 1 percent said they would spend more. Findings in the $10 million to $30 million category were only slightly better, while families with a net worth of $30 million-plus projected spending to be about equal to last year.
Like the hardiest of any species, luxury retailers with the ability to adapt will have a better chance of survival.
Julie Gilhart, senior vice president and fashion director of Barneys New York, has been moving the chain in a more sustainable direction with green and recycled apparel, and believes the old retail mind-set is no longer relevant. “I’m excited about this,” Gilhart said. “Let’s start a new kind of consumerism, a more-aware consumerism. We’re trying to educate the consumer in a better way: Reuse, recycle, don’t hoard.”
Barneys in April introduced a program in which consumers could drop off old T-shirts at the stores that were then refashioned into a limited edition collection by Loomstate for Barneys Green. “We’re going to keep offering new things and trying to find new people who are conscious of the way they’re doing things,” Gilhart said. “We’re celebrating craftsmanship and limited product. The economy is telling us that we have not watched our consumerism and it’s kind of turning back on us. The environmental movement has made consumers realize that the more they buy, the more they’re contributing to the carbon footprint.”
Still, finding blueprints for new business models won’t be easy. “It’s going to be really hard to navigate from a business standpoint,” Gilhart said. “A metaphor for this is that we elected an African-American as president. It’s a metaphor that things are changing. Excessiveness has gone out of style.”
“People’s spending has really changed,” said Nevena Borissova, founder of Curve in New York and Los Angeles. “People feel guilty when they’re buying luxurious items. For the first time, we’ve seen amazing Burberry jackets, priced from $2,000 to $9,000, go on sale. We always had 100 percent sell-through. In September, we were selling a Valentino handbag a day. Now we sell one bag a week. The magic price point used to be $500. Now $300 is the price point people feel the most comfortable with. Two years ago I never looked at price when I was buying for the store. My clients had never ever been price sensitive. J.Lo was here last week. She never looks at a price, but she went through her receipt because she wanted to be responsible and not overconsume. With eco and sustainable [as buzzwords] everybody is trying to be more responsible and green and not pollute the planet.”
If Intermix, which is known for vibrantly colored and embellished ensembles, is any indication, then fashion is in for a less-showy period. Last year, the retailer’s windows were festooned with the most extroverted styles by Stella McCartney, Zac Posen, Proenza Schouler and Diane von Furstenberg, with furs and oversize handbags tossed into the mix. Intermix is now selling clothes with a more understated appeal. “We sold a lot of embellished products in 2007,” said Khajak Keledjian, Intermix co-founder. “Fashion itself has changed. We’re more sophisticated and toned down. You see less accessories. The clothes are less in your face. We’ve followed the lifestyle of the customer. We’re also trying to bring consumers a better value by working with our manufacturers. When I go to a showroom and see something I like, I ask them: ‘How can I do that product for 20 percent less?’ We’re being super creative.”
Linda Dresner, who revealed last month that she will close her eponymous boutique on Park Avenue in Manhattan, said consumers’ shifting attitudes figured greatly in her decision. “They don’t feel comfortable flaunting,” she said. “They’ve made a decision not to spend right now. They’re not going to shop until the economy feels better.”
Dresner’s stores — her self-named boutique in Birmingham, Mich., will continue to operate — have never been about ostentation and glitz. Dries Van Noten, Jil Sander and Martin Margiela, designers she’s long championed, are known for their minimalist or low-key aesthetic. “Flaunting one’s wealth or possessions is no longer appealing,” she said. “It may be overexposure to that. I still love to look at beautiful art and listen to beautiful music. People will invest in the things they want and need. If a woman needs a new pair of shoes, she’ll buy them, but I don’t feel there’s going to be all that accumulating. People who have wealth have made a decision to live in a quieter way. A quiet sense of wealth is not in bad taste. An exaggerated method is not so attractive.”
Not surprisingly, the so-called “It” bag has suffered from consumers’ changing perceptions. Once trophies paraded at society luncheons and charity dinners, “It” bags represented two things: wealth and a degree of insider clout since the bags’ exclusivity practically guaranteed demand would exceed supply. Today, the reluctance to wear one’s wealth on one’s shoulder has made the high-priced handbags an endangered species.
“We’re not interested in any ‘It’ bags,” Dresner said. “We’re interested in bags that are useful and good-looking. Except for Azzedine Alaïa, I would not buy a very expensive bag for the store — like, say, a $3,000 number. Something between $700 and $900 is more like it, and we have less-expensive things that we do very well with, like Luisa Cevese handbags and totes for $300. I’m trying to choose merchandise that has a visual, useful appeal. We bought If Six Was Nine and Givenchy for spring. They’re expensive, but they’re not so over the top, so consumers may be tempted.”
Shoppers won’t be tempted if they’ve lost that urge to splurge. In “The Simplifier” (Harvard Business Publishing, October 2008), marketing expert John A. Quelch identifies a new psychographic — middle-aged affluents looking to downsize during the economic downturn. This group is making do with less, not because they have to, but because they want to. “Consumers with assured wealth look around at all their stuff and feel more sheepish than proud,” Quelch said. “It embarrasses them. Gas-guzzling SUVs no longer signal success, just irresponsibility. Conspicuous consumption may be out, but simplifiers are still spending. They want to amass experiences, not possessions, and would rather savor pleasures like foreign travel than pile up yet more toys.”
Mall operators also are noticing a change in consumers’ attitudes. “There is such a negative psychology out there that even people who are not impacted are forgoing shopping out of sympathy because they think they’re taking the moral high ground,” said Edward A. Glickman, president and chief operating officer of shopping mall developer Pennsylvania Real Estate Investment Trust. “The end result will be more layoffs and more communal misery. It’s become a new rage to pull back [on spending]. It’s not helpful for the shoppers who can afford to shop to stay home. If everybody takes a small step, the psychological turnaround will happen at the level of the common man and common woman.”
Douglas Gollan, president and editor in chief of Elite Traveler, who recently coauthored “The Sky’s the Limit,” about the luxury-lifestyle buying habits of the superrich, said excess is relative. “It’s only excessive if you can’t afford it,” he said. “If you thought you were rich because your home’s value doubled on paper and you did things to show your neighbors at the end of the cul-de-sac who can afford to drive Porches or BMWs that you were rich, too,” you’re not feeling so flush.
“The aspirational consumer who was trading up is not buying,” he continued. “They refinanced their house, went on vacation to Nevis and bought a BMW Roadster. Are the superwealthy still spending the big bucks? Absolutely. The thing that’s changed is they’re not flaunting.”
Gollan said luxury brands that stayed true to their essence will “do OK based on the superrich. The companies that went into the aspirational market are going to be hurt, but brands such as Hermès, Graff and Leviev will be less affected because they didn’t play down to the aspirational consumer. We are focused on people who fly by private jet, which is down by 10 to 15 percent. The corporate aspect is down, but the wealthy individual travel is actually up because it’s less convenient than ever to fly commercially.”
Adds Unity Marketing’s Danziger: “When the luxury consumers come back, they won’t be the same as they were before the economic crisis. The luxury market is shifting away from conspicuous consumption to a new enlightened mind-set where enhancing the quality of life is the goal.”
People earning $250,000 a year, dubbed High Earners, Not Rich Yet (or the “HENRYs”) by Time magazine, are living middle-class lives and can’t afford luxury products, Danziger said. “The ultra affluents, who earn $250,000 a year and above, are comparison shopping, making lists and going to the store with the lowest prices,” she added. “The best-positioned premium brands offer quality and workmanship — [they] aren’t covered over with initials and logos, but rather are subtly and quietly exceptional. Furla is an example of a brand that offers some luxury and quality attributes, but is not premium priced.”
Danziger questioned Louis Vuitton’s image campaign, especially an ad with Keith Richards that “doesn’t say anything about quality or heritage or anything that commands the premium prices.” While Louis Vuitton’s business has held up in the U.S. and elsewhere, the company’s sales in Japan, where it has been said that nine out of 10 women own a Vuitton product, slid 6 percent in the first half of the year. “Most luxury retailers,” said Danziger, “are having a hard time seeing the way. This is a very vulnerable time for them.”
Despite the feeling that the Age of Consumption has given way to the Age of Caution, not everyone believes the shift is permanent. “Conspicuous consumption isn’t dead, but it is certainly in remission and is now out of reach for a significant part of [luxury] brands’ consumer base,” said Jeffrey Paisner, a retail broker at Ripco Real Estate Corp., who represents Christian Louboutin and Zara. “The current economic pain is far more palpable to a much broader spectrum of the consumer economy…especially the aspirational luxury consumer. Flaunting one’s wealth is much less appealing or impressive in an economic climate where so many people are simply struggling to survive. In these times, the focus is more on the practical need ‘to chop wood and carry water,’ not on whether your water comes from a gold-plated faucet or one encrusted with precious gems.”
Alberta Ferretti's "Rainbow Week" sweaters are back. The designer closed her #MFW show with a few day-of-the-week sweaters, which first debuted on the catwalk last January as part of the pre-fall 2017 collection. #wwdfashion (📷: @delphineachard)