Wealthy Tighten their Belts

Faced with the sharpest decline in net worth in nearly 50 years, wealthy individuals 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, luxury stores and high-end brands.

Certainly, many of the ultra-rich are not exactly scrimping ...

Some are still dropping $100,000 on a fur coat or $1,000 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.

And why not?

Deep discounts are making it a great time to stock up on high-end clothes and accessories, whether it’s a Chanel suit, a Prada bag or a $1,000 pair of Christian Louboutin shoes with their bright red soles.

But if conspicuous consumption was a hallmark of the luxury days of old, those still shopping 'til they drop are taking a more low-key approach, apparently out of deference to the new breed of have-nots.

Still, the affluent clients are buying fewer items and choosing special pieces that are less flamboyant.

Luxury sales in the U.S.A. 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 the rich people’s appetite for extravagance.

But the financial meltdown has deflated the demand that reigned for much of this decade, resulting in plummeting sales for many luxury stores.

That has forced high-end stores to offer discounts of up to 70 percent before the traditional start of the holiday shopping season.

The cutbacks by the wealthy are clearly different from the grocery-aisle economizing so many people have begun making. For one, the rich typically don't trade down to lower-price brands and stores, luxury experts say. Instead of six pairs of Manolo Blahnik shoes at $700 each, they will buy two -- not browse the discount stores.

It may be hard to sympathize with such trade-offs given the sudden erosion of jobs in nearly every sector and people's uncertainty about putting food on the table or paying their mortgage.

But millionaires saying no to that third pair of high-priced heels is worrisome for us all, say economists, because it deepens the trough consumer spending has fallen into.

The economy depends on spending by the wealthy because of their dominance in discretionary purchases, from boats to furs.

In the last weekend before Christmas, Faith Hope Consolo, chairman of real estate firm Prudential Douglas Elliman's retail leasing sales division, noted that luxury stores stepped up price cuts even more:

On New York's chic Madison Avenue, discounts at luxury boutiques ranged from 70 percent to 80 percent off; at Saks Fifth Avenue, discounts were up to 90 percent.

"They are virtually giving the goods away," she said.

Offering such deep discounts can cost high-end retailers beyond falling profits, risking the cache of their brands.

The smart consumers right now are not looking for markdowns …

They are looking for steals!