The rich may not be quite so different than you and me these days: They, too, have less money.
Their fortunes have fallen along with the prices of stocks, oil and real estate.
Luxury condos on Florida beaches languish; champagne sales are down; private jets sit idle.
Times may be tough for the wealthy, but they're tougher for those who serve and sell to them.
"Business may be a bit off this year," allows Doug Turner, president of Millionaire's Concierge in Fort Lauderdale, which offers everything from VIP concert tickets to $13,000 rides in fighter jets for the wealthy. The rich are cutting non-essential items, and that hurts his business. "Everything I sell, you don't need," he says.
Just what defines "wealthy" is subject to debate. The Securities and Exchange Commission defines a high-net-worth person as someone with $750,000 or more in investible assets. Under President Obama's tax plan, people earning $250,000 or more annually are wealthy enough to get a tax increase — and those people are in the top 2% to 5% of all income levels.
By most accounts, the wealthy have done well. Those in the top 10% of income have seen their income rise 34% after inflation since 1979, according to the Federal Reserve, vs. 4% for those in the bottom 10%. Their gains have spawned thousands of businesses whose employees pamper, prop up and please the very rich. Those workers are the builders of the vacation condos, the delivery drivers of champagne, the pilots of private jets.
And while the luxury industry isn't anywhere near as big as the market for everyone else, it's still a significant part of the economy (1.2 million luxury cars sold last year alone) — and one that won't recover until the recession is well over.
Make no mistake: The recession is easier to bear if you have a few million in your wallet.
And people with a great deal of money are still going to spend it. For example, the Ritz-Carlton hotel in Washington, D.C., offered a four-night package that included two tickets to the Inaugural Parade, two tickets to an Inaugural Ball and Gucci luggage. A well-heeled President Obama supporter paid $12,000 a night for it.
Nevertheless, the wealthy are cutting back. Bentley, the British automaker, says sales are down 32% in North America. And a 1947 Matisse cutout at auction at Christie's in December went without a single bid.
"It's conspicuous non-consumption," says David Wyss, chief economist for Standard & Poor's.
And retailers who cater to the wealthy are slashing prices. In tony department stores such as Bergdorf Goodman during Christmas, shoppers could find handbags marked down 40% or more. Big chains such as Saks Fifth Avenue and Bloomingdale's were chopping prices 50% or more.
"It was unbelievable," says Faith Hope Consolo, chairman of the Prudential Douglas Elliman Real Estate's retail sales and leasing division. "Luxury never had sales before Christmas before."
They had little choice. For retailers, inventory is a wasting asset: No one wants winter clothes on the rack in the spring. But many luxury retailers are finding that shoppers are still cutting back.
One strategy retailers are trying, Consolo says: Rolling out lower-price luxury lines that will appeal to the slightly less affluent, thereby increasing their potential market. High-end designer Roberto Cavalli, for example, has launched a line called Roberto Cavalli at H&M, the hip yet far less luxe outlet than, say, Cavalli's line for Saks, where dresses range from $2,195 for a silk halter gown to $575 for a diamond-chain-print tee.
Yet, some luxury items hold up well no matter the economic climate, Consolo says: "Anything that makes them feel good or look good." A client who will no longer buy a $3,000 bag, for example, might splurge instead on a $30 lipstick.
Luxury-home builders have been hit even harder than luxe retailers. A survey by the National Association of Home Builders found that sales of homes in the $250,000 to $1 million price range declined 80% last year from 2007. Sales of homes priced more than $1 million fell 70%, says Gopal Ahluwalia, vice president of research for NAHB.
High discounts and low sales have meant financial woes for companies — and that means layoffs.
Neiman Marcus, citing a tough sales climate, said this month that it would cut 375 jobs, or 3% of its workforce. Macy's said it would close 11 stores. Gadget purveyor Sharper Image filed for Chapter 11 bankruptcy in 2008. And in Florida, two affiliates of Ginn Cos. filed for bankruptcy as two of its high-end housing developments ran into trouble.
Unemployment in luxury retail and the construction industries is soaring. The unemployment rate in the construction industry is 15.3%, vs. 9.4% in December 2007. For those in the restaurant business, unemployment has shot to 9.8% from 7.8% a year earlier.
Even casinos are feeling the pain. At the Silver Club Hotel & Casino in Sparks, Nev., 200 workers were laid off in December when banks refused to fund a buyer. The Stations Casinos in Las Vegas said in December that, as a cost-cutting measure, it would stop matching worker 401(k) contributions.
"Layoffs have been significant, and they will be even more significant in the weeks and months ahead," says Bruce Raynor, general president of Unite Here, the union that represents hotel and restaurant workers. "Las Vegas has been hit particularly hard."
Hotel workers in Hawaii and Puerto Rico have been hurt because those areas cater mainly to tourists rather than business travelers, Raynor says.
Then there's the yachting industry. The market for 450-foot ships called gigayachts is relatively unchanged, says Kristen Cavallini-Soothill, director of the American Yacht Institute, a Fort Lauderdale school for stewards and stewardesses. But sales of yachts in the 60- to 110-foot range are suffering, she says. "Even the Russians are slowing down."
Those who are hiring interior crews for yachts are being more discriminating, and those who get jobs are trimming their salary demands, Cavallini-Soothill says. Crewmembers don't demand $4,000 a month anymore.
"They're going to get paid $2,500 a month," she says, adding that crewmembers do get free board and meals prepared by a chef.
In Vail, Colo., the luxury ski resort, lodging occupancy is down over previous years, says Chris Romer, vice president of sales and marketing for the Vail Valley Partnership. But many of the bookings were made at the last minute, in large part because of special offers: lower prices, extra days, free meals. And, he says, family restaurants are packed at Vail, while average tabs at luxury restaurants have fallen. For the first time, the town of Vail has started its own marketing campaign to lure skiers.
When will the luxury market come back?
It depends, to some extent, on public attitudes toward wealth. At Symbolic Motor Car Co., which sells Bentley, Rolls-Royce, Lamborghini, Lotus and Spyker, business is slow, says general manager Graham Cox. To some extent, that's to be expected in a slow economy. "We're not on the list of everyone's priorities."
But the slowdown may be due, in part, to a recognition that this economic slowdown seems worse than most. After all, the wealthy can still afford fancy cars. But going luxe may be seen as déclassé in an ailing economy, Graham says.
"The wealthy still have the wealth," he says. "It's the image you project in a bad economy of driving a nice car when your friends or colleagues may be losing their businesses."