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DESIGNER BELTS TIGHTENED

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By ANNE D'INNOCENZIO

The Associated Press

Published: December 23, 2008

NEW YORK - The rich are tightening their belts, too. Even if it's still a Gucci.

Faced with the sharpest decline in net worth in nearly 50 years, wealthy Americans are re-evaluating their priorities and slashing their spending at a rate unseen in decades - a move that could have dire consequences for the economy, especially luxury stores and high-end brands.

Luxury brands are cutting their inventory, changing their assortment of products and tweaking their advertising message.

"Fewer, better things," diamond jewelry giant De Beers Group suggests in a recent ad campaign.

Sure, many of the ultra-rich aren't exactly scrimping. Some still drop $100,000 on a fur coat or $600 for a pair of shoes - but increasing numbers who were never bargain-hunters are picking through mounds of discounted designer goods to save money in an uncertain time.

Luxury sales overall dropped 34.5 percent in the first week of December from the same period a year ago, according to SpendingPulse, a data service provided by MasterCard Advisors, and were down 23 percent in the five weeks ending Dec. 6.

Such behavior differs dramatically from even just a year ago, when luxury stores couldn't keep up with A-listers' appetite for extravagance.

The meltdown has since deflated the demand that reigned for much of this decade, resulting in plummeting sales for many luxury purveyors. That has forced high-end stores like Saks Fifth Avenue and Neiman Marcus to offer discounts of up to 70 percent before the traditional start of the holiday shopping season - akin to their downscale competitors.

The aspirational luxury shoppers, those whose average annual salary is about $150,000, began cutting back a year ago, according to Milton Pedraza, chief executive of the Luxury Institute, a research firm. The cutbacks spiraled up the economic scale as the slowdown deepened. Single-digit millionaires began pulling back sharply starting in March, when Bear Stearns nearly collapsed and was bought by JPMorgan in a fire sale, Pedraza said.

"This is no longer a state of mind, or what feels right," said luxury consultant Robert Burke. "This is a reality of where people's bank accounts and investment portfolios are."

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