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The conventional wisdom -- based on past economic cycles -- is that luxury goods sales stay relatively strong in periods of weak consumer spending. After all, people who have a thousand bucks to spend on a purse are thought to be relatively immune to gas prices, the job market, and property values. Sure, their portfolios might take a hit, but they have enough money to buy bags and shoes.Not so this time around, according to new data (subscription required) from Mastercard's SpendingPulse unit. For the first week of December, sales of luxury goods were down a mind boggling 34.5%.
So what happened? Part of the problem may be the expansion of the luxury goods market to middle-income consumers during good economic times as more people overextended themselves on Louis Vuitton bags they had no business buying. Now that their home values have plunged, their jobs are less stable than ever, and their credit limits have been lowered, they can't buy the stuff. The slick marketing that enticed Middle America into a category that used to be the province of socialites is sending sales sinking on the downside of the economy.
The question for investors in luxury goods companies like Coach (NYSE: COH) is how many of those aspirational consumers will come back once things turn around again.
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Reader Comments (Page 1 of 1)
12-15-2008 @ 2:28PM
beanspants said...
i think another question is more interesting:
Why did 'luxury' manufacturers ever dip into decidedly middle income consumers?
The obvious simple answer is because they wanted more money and sadly that the upper income percentile of buyers is smaller than one would like to imagine.
But what's the long-term answer? that these products are now thought of as middle-income and their luxury brand appeal is destroyed.
that true luxury items are sold in small lots and not in outlet malls? it will be interesting to see what becomes of shopping on the other side of this economic downturn.
and which current luxury name is gonna go the way of guess jeans?
12-15-2008 @ 8:20PM
nolobeach said...
Granted, retailers may be facing a challenging time. However, I think most families would be better off holding on to their money and not incurring additional credit card debt. It isn't a great price if you don't "need" it. The truth is that most of us have all the crap we need. Few of us actually really need more of anything. It's not need, it's want. Food, gas, toilet paper, imagine living a year just buying those items. CASH! Piles of cold hard cash is the best way to weather the current economic situation. I discovered one of the best books you'll ever find about finance, "How to Become Filthy Rich on Your Current Income" at www.how-to-become-rich.com. If people read books like this one we would not have the current situation we do.