The rich and super-rich were somehow supposed to be immune to tough times: their immense wealth was said to enable them to ride out the vagaries of a credit crunch or slowdown: luxury goods manufacturing and retailing were said to be a good investment, they were a defensive investment in tough times, along with food retailers, gaming stocks, such as casinos and of course, sellers of alcohol, such as breweries.

The ranks of the rich and super rich were swollen by the arrival of the easy money wealthy: hedge funds and other masters of the financial universe (when money was cheap and credit free and easy). That also pushed a lot of wealthy people into the ranks of the super rich as the value of their holdings and companies rose: James Packer is a perfect example in Australia.

That is now all history. The credit crunch and economic slump is cutting a swathe through the assets of the rich and super-rich and their suppliers.

Results from a clutch of luxury goods providers show that their customers in the carriage trade are just as vulnerable to the impact of the slump as us poorer folk. From luxury Swiss watches, to Florentine shoes, sales of champagne and baubles and geegaws made by Tiffany’s of New York, conspicuous consumption is definitely out, modesty is in, especially where banks and other companies have been bailed out by the various governments.

It’s a horrible tale, not made any better by reports like those in Sydney newspapers on Sunday of the continuing asset sell down by one of Australia’s richest people, James Packer. Those reports have him delaying delivery of a new $A60 million jet, quietly putting his huge $50 million luxury cruiser (150 feet long!) back on the market, while work on a multi million dollar extension of a property near Scone, in NSW, has reportedly been put on hold. He’s also selling his privately owned Australian rural properties for over $400 million.

He’s not the only wealthy person cutting back, nor will he be the last.

Luxury and not so luxury retailers and makers of goods, such as luxury car makers like BMW and Mercedes are all slashing production and jobs as the stocks of unsold vehicles mounts. Toyota is cutting output of Lexus models and reports overnight said the slump had hurt Aston Martin, the boutique British sports car maker (James Packer and James Bond drive them) that it could breach its bank loan restrictions later this year, which could see it on the verge of someone worse, like collapse.

The world’s biggest beer maker, SABMiller, saw global sales fall late last year, with the US and European markets hit hard Sales and shipments of champagne have fallen in recent months. US sales of champagne fell by more than 17% in 2008.

But the rarified ranks of the super rich are being thinned out by the slump, especially in hedge funds and private equity. A recent report from a French research group, Cap Gemini said the world’s rich people suffered their first fall in net worth in 2008 for 12 years. In America millionaires lost a third of the value of their assets in 2008.

Richemont, the world’s second biggest luxury goods group, has issued a grim warning about the outlook for sales of expensive jewellery, watches and accessories, as the world’s second-biggest luxury goods company said sales had fallen by 12% in the crucial third quarter, which covers the Christmas period.

The Geneva-based group, best known for up-market brands such as Cartier, Vacheron Constantin and Montblanc, said it saw no let-up in what it called the toughest market conditions since its formation 20 years ago. The steepest drop came in the Americas, predominantly the US, where third quarter sales fell by 28% to 250 million euros, year on year. Sales in Europe were down 9%, and by 18%. All of Richemont’s main activities were affected. Sales of writing instruments showed the steepest decline, with a 17% fall in sales; jewellery, like Cartier necklaces was down 12%, while watch sales including Montblac, dropped 11%.

It was a similar story at Tiffany’s where the world’s second-largest luxury-jewellery retailer said last week that Christmas-New Year holiday sales fell 21%. Same store sales declined 25% for the period. On a constant-exchange-rate basis — which excludes the effect of translating foreign-currency-denominated sales into US dollars — net sales fell 20% and same store sales fell 24%.

The Florence based luxury show maker, Ferragamo will cut new store openings by 50% this year and has postponed its float as sales weaken due to the economic slump. The company had planned to maintain growth at 2008 levels, but last week revealed plans to open just 20 new outlets around the world, down from the previously announced 45. Ferragamo is in good company, LVMH, the giant French luxury good maker and retailer, has cancelled the new flagship shop in Tokyo, one of its usually top markets and Bulgari has cut store openings to the 12 already planned for 2009.

And boat builder to the very rich, Ferretti of Italy, is hiring financial advisers for a debt restructuring as sales fall and revenue plunges. The move comes only a few months after Candover, Ferretti’s British private equity owners, abandoned the planned float of the company on the Milan stock exchange.

The company specialises in luxuriously equipped yachts costing on average 1.5 million euro. Until late last year it was doing well, but sales fell in a hole after Lehman Brothers collapse in September.
And with Tiffany’s doing it tough in the US and especially home base, New York, it’s no surprise than Saks, the US luxury department store chain, is cutting 10% of its staff and slashing its inventory as it faces what its chief executive called “some of the most difficult economic conditions in our company’s 84-year history”.

The retailer said late last week that 1100 corporate and store positions would go, as would contributions to its staff pension fund as well as any merit-based pay increases for the coming year.
Saks was hard hit by the slump in upmarket spending after Lehman Brothers failure and reported an almost 20% drop in same store sales in December. That was after introducing discounts in pre-Christmas sales of up to 70%.

Peter Fray

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