Tuesday, October 6, 2009

Back to the hedonic treadmill?

What happens now that Fed chairman Ben Bernanke has officially declared the recession “ likely over?” Consumer spending, still sluggish, is finally on the rise. Nobody is yet breaking out the champagne – and as bloggers and cartoonists among others have warned, the economy won’t truly rebound until jobs return, and right now it’s still not a pretty picture. But is a new frugality here to stay, or will we soon return to some of our old ways? It may depend on your rung on the ladder. While working stiffs grabbed private label bread and took staycations, the rich curtailed their purchases of fine art and sold off the private jets. Sure, the recession slammed the fortunes of rich and poor alike – Bill Gates is out $3 billion -- but the families who had $20 million before the recession and then found their assets depleted to $14 million were never in jeopardy of going hungry. To some extent, the wealthy went on a time-limited spending diet because of a jarring hit to their balance sheet, and because for at least a while it appeared unseemly to flaunt lavish purchases when so many people had fallen on hard times.

But here’s a truism which bears repeating: the rich can only hold out for so long. They really do need, or at least, really, really want what others may call non-essentials , like couture, art, and second homes. Once the stigma lessens, as Michael Silverstein of the Boston Consulting Group says, “…the rich will realize they're rich again and start to spend.” According to the 2009 Mendelsohn Affluent Survey, nearly a third of wealthy households purchased fine jewelry and a fifth purchased artwork or collectibles in the past year. As the recession slowly begins to thaw, the rich are very likely to go back to their old acquisitive ways, driving the recovery further and faster.

Luxury brands are salivating at the prospect they can woo affluent shoppers as they trickle back into the store. MarketWatch reports that at the Saks Fifth Avenue flagship store, the personal-shopping service area is ready and waiting and lavishly appointed with stunning views. In addition, the store is limiting stock and focusing on exclusive brands and lines. High-end brands are also focusing on offering top-notch quality and design; for example, Restoration Hardware has hiked prices 20 to 30 percent to distinguish its offerings from its lower-quality competitors. Exclusivity and great design have also kept Louis Vuitton and Hermes growing impressively, even during the recession. Some luxury retailers are toning down the flash a little, such as Fabergé, which has launched an online venture to allow shoppers to participate in “inconspicuous consumption.” While some have criticized these attempts to lure back the luxury market with high prices, exclusivity, quality, and discretion, we think they just might be enough to get the rich spending again.

Any chance the well-heeled are going to help spend us out of our troubles?
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