Luxury and the masses

Monday, August 10
Posted 11 a.m. EDT

What defines a luxury item? Is it price? Exclusivity? Craftmanship? How about the $325,000, two-story dog house recently ordered up by Paris Hilton, with a crystal chandelier and custom closets for all those precious doggy outfits?

According to various statistics, sales of luxury items are tanking during the recession. Boston consulting company Bain & Co. predicts luxury sales will drop 10 percent overall this year, with a slow recovery by 2012.

But it seems that luxury is defined in broad terms for the purpose of statistics. So while luxury-for-the-masses brands such as Coach are slogging through a dearth of sales, its average price of $300 for a shoulder bag is probably hardly worth noting by an uber-spender of Hilton's caliber.

I realize that the definition of what is luxury and what is merely an expensive purse may be a fine point. Overall, consumer spending makes up approximately 70 percent of total economic activity, and after all, we don't need the numbers to tell us we're in a recession. Until all of us feel free to spend again -- whether those dollars go toward staples or luxury items -- the economy will suffer.

But it seems that the rich are continuing to hold up their end of the spending seesaw when it matters to them. It may just be that their priorities have shifted. The Bain & Co. report, for instance, noted that consumers are "willing to spend for items and brands that pass the worth-it test." For a dog-lover, that might just mean a $325,000 canine mansion.

American Affluence Research Center president Ron Kurtz remarked in a press release that he "doesn’t see any evidence that the majority of the affluent are showing major long term trend changes in their spending patterns and attitudes." In other words, they're spending and saving the same as they always have.

In the center's survey of 640 men and women in the wealthiest 10 percent of households (average investable assets of $1.4 million) top line results show that "preservation of capital" as the primary investment objective of most respondents, yet "the percentage of respondents who said they will make a conscious effort to reduce expenditures in the future are still planning, in relatively substantial numbers, to take a cruise, have major remodeling done to their homes, or make motor vehicle acquisitions."

With a mere $1.4 million in investable assets, they likely wouldn't be considering buying The Star of India, a one-of-a-kind 1934 Phantom convertible originally owned by the Maharaja of Rajkot, on sale for more than $14 million. Nor "The Vivid Pink," a 5-carat diamond that Christie's in Hong Kong will auction in December for an estimated take of $5 to $7 million. Those items are not in the same "luxury" class at the ubiquitous Coach shoulder bag. If a buyer snaps up the pink diamond or the Phantom, we'll have a better gauge of the state of spending on true extravagance.

Then again, the price of the Maltese Falcon sailing yacht was slashed by $40 million, and recently sold for $100 million. But even after the price cut, it's hardly chump change. Someone obviously thought the purchase was "worth it."

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