Will The Rich Stop Shopping in 2008?

Robert Frank, the WSJ Wealth Report blogger, says he believes that the rich are not immune to downturns in the economy and have already begun to cut down on their shopping. As evidence, he cites a Chicago Tribune article that says the average amount spent by affluent consumers on luxury dropped 21 percent to $12,142 in the third quarter from an average of $15,283 in the second quarter. But Frank doesn't say why he thinks they will stop shopping. And I think the why is important when it comes to considering which things they'll cut back on. Today's rich are, for the most part, working rich. They're people who have made their own money. That means that even if they do not have a mortgage, they understand what the crisis means for the greater economy. They might have families and and friends who are suffering because of rising interest rates. They're likely to have a greater connection to the psyche of the country. If the mood is grim, they'll feel it and that might make them feel less like shopping. For certain things, anyway. Personally, I think this goes hand-in-hand with the rise of spending on "stealth luxury" or things that don't scream their cost -- things without logos or brand names on them, like a bag from Bottega Veneta. Some things, like a new handbag, can be justified as necessities while other things, like a diamond chocker or a thoroughbred horse will be harder to rationalize. They're also more conscious of getting value for money than those who inherited their money. Rich Americans know that with the dollar sinking to new lows every day, they're getting less for their money when it comes to products from Europe. And, even if they can afford it, people who earned their money don't like to feel it is being wasted. But even if they're buying fewer things, I think they'll keep buying luxury things. I haven't seen many people go back to buying Coach once they've owned their first Gucci. Neiman Marcus's C.E.O. told analysts during a December conference call, "We have experience with this. We've gone through it before. This customer does not trade down, she does not change venues, she does not leave us. What she does, if in fact this continues to be challenging -- we're not sure it will be, not sure it all will be -- she'll buy a little less."

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