It’s getting so you don’t want to turn on the news anymore, because it’s seldom good where the economy is concerned. Perhaps it’s because conventional wisdom says good news doesn’t sell. But bad news, repeated often enough, can become a self-fulfilling prophecy.
Your college professors were right to teach you to read critically. Just as you put your most eye-catching pieces in the front of the case, news is written with the most attention-grabbing information first. But critical analysis provides the entire picture.
Recently, Forbes.com featured an article titled “The Working Rich Are Nervous.” The working rich, well off but not immune to economic vagaries, make up much of the customer base for many better independent jewelers, and the article suggests that these folks (net worth between $1 million and $10 million) have slammed their wallets closed.
It cites research by Russ Alan Prince, president of a private-wealth research firm and author of The Middle Class Millionaire, showing that 78 percent of the working rich consider themselves “very or extremely concerned about being able to maintain their current financial position” and that 21 percent have already begun to pare back spending.
That’s a big point spread! Seventy-eight percent of respondents are concerned about their financial future, but only 21 percent are worried enough to start to change their spending habits? That means 79 percent have not reined in spending—a full percentage point higher than the number of respondents who proclaim themselves “very concerned” about finances.
Unity Marketing’s Luxury Consumption Index also fell 27 percent in January, to its lowest level since the firm launched it in 2004. (Remember that 2004, when the survey launched, was enjoying a real-estate boom.) In a fourth-quarter 2007 poll of 1,281 mass-affluent consumers with an average income of $155,000 per year, 24 percent of luxury consumers said they felt their financial situation was worse than a year ago, double the number who said as much in the third quarter of 2007.
Let’s examine the other side of those figures. A 100 percent increase in the number of people feeling skittish is not something to take lightly. But that leaves 76 percent of respondents who didn’t cite their situation as worse than a year ago. We also don’t know about personal situations. Were the 24 percent among those who bought more house than they could afford? Do they live in an area hard hit by real estate or unemployment woes? Did they have a personal financial crisis or unexpected expense caused by illness, layoff, divorce, etc.?
Numbers are a good indicator, but without knowing the stories behind them, we don’t have a fully accurate picture. Anyone who’s bought gas or groceries or paid a utility bill in the past few months knows costs are up, but does that mean affluent consumers will simply give up a few meals out, or does it mean we’re in for a protracted dry spell?
Pundits have said for a long time that the affluent feel pinched in a downturn, but once people get a taste of luxury, they don’t want to return to the ordinary. That means that the affluent most likely will deal with it by making small trade-offs, not becoming neo-Spartans.
Judging by the Forbes.com article, that’s what’s happening. While a few of the working rich have downscaled to lower-price stores like Target instead of luxury retailers like Nordstrom, most have simply become more selective, and they want to justify purchases as practical. GPS devices, iPhones, BlackBerrys, computer equipment and software, big-screen TVs, top-tier home appliances, golf lessons, personal trainers, and vacations all qualify, and all still sell. So do luxury cars—but not sports cars. Luxurious as the SUV (such as a Porsche Cayenne) might be: The kids, the groceries, the dog, and the golf clubs can all go into the SUV together. That’s a useful vehicle. But the little two-seater meant for zipping around on a Sunday drive will have to wait.
Sales at luxury retailers like Nordstrom and Saks have slowed, underscoring the message that discretionary purchases require some kind of justifiable value for everyday life. At the same time, the mood at the Centurion Jewelry show, held Feb. 2–6 in Tucson, Ariz., was fairly upbeat, with higher retail attendance than ever and vendors busy writing orders. The general feeling among retailers there was that it’s essential to keep your name in front of your customers. And you need to prove that jewelry is practical. It’s the best example of the “buy fewer but better” mentality. Jewelry can be worn every day for years. Classic pieces became so because women don’t get tired of them. The iPhone will have a newer model within two years, the handbag might go out of style even sooner, and eventually you’ll have to replace the washer and dryer and TV set. So, if ever there were a time to buy something that lasts, now is it!