• by Gregory J. Furman , Op-Ed Contributor, February 19, 2009

Given the worldwide economic decline, the once seemingly-recession-proof luxury sector is under siege.

It's no longer just the aspirational customer--families with household incomes of $250,000 to $500,000--that are pulling back. It's the buyers of couture products and services: people with liquid portfolios, investible assets of $1,000,000 and more.

Many luxury brands experienced double-digit losses for the fourth quarter of '08, and anticipate continuing losses in Q1 and Q2. It's no longer possible to say that "Despite Tough Times, Ultra-rich Keep Spending"--as was the case last year.

At issue is a "systemic de-leveraging," the paying down of massive debts accumulated in recent decades. That's a naturally deflationary force, and one set to go on for years inside the U.S.

The haunting question remains: "When times get tough, will the smartest and richest still spend money?" And how will the most innovative luxury marketers change their strategies to persuade them to do so?

As the divide between the merely wealthy and the ultra-wealthy widens, how will this affect the luxury market in 2009? What are the smartest brands doing to offset hard times? How are they changing their marketing expenditure? Is there light at the end of the tunnel, and when?

Research Findings

The Luxury Marketing Council (860 companies, 3,000 CEOs and CMOs in 32 cities worldwide) recently completed--thanks to IPSOS/Mendelsohn--a survey of its members in New York (320 companies) and Boston (65 companies) to address these issues.

Seventy-eight percent say recent economic/financial events have negatively impacted their businesses; surprisingly, some 22% said "not."

Sixty-five percent said sales were declining; 34% said there was less store traffic; 28% said they had fewer inquiries from customers; only 9% said there was less spending/commitment on the part of best customers; 6% had cut budgets and only 2% were experiencing an increase in returns.

What are luxury brands doing to adjust?
52% were cutting advertising/marketing expenditures
36% were reducing orders to suppliers
23% were laying off staff
14% were slowing down delivery of ordered goods
8% were reducing staff hours
6% were cutting expenses
1% were reducing prices

Those who were pessimistic about the upcoming year were asked what actions they were taking.

69% said to reduce advertising/marketing expenses
44% said to reduce orders
41% said not to hire more staff
6% said to cut back business hours
3% said to increase advertising and promotion, be more aggressive with pricing.

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