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NEW YORK - The stock market is swinging like a pendulum and the credit market is getting tighter than a drum but there are no signs the rich are buckling their Pradas to hold onto their bucks.
"Luxury goods still have quite a lot of momentum," said Kamalesh
Rao, director of industry research at SpendingPulse, the retail data service of MasterCard Advisors.
Rao said luxury goods sales rose 10.7 per cent in July from a year ago and added, "I'd be surprised if that changed radically in August."
SpendingPulse tracks sales in the MasterCard payments network and estimates sales for other types of payment.
Rao estimated that luxury goods sales in August would rise a vibrant 8 per cent or 9 per cent, compared with apparel sales overall, which rose about 2 per cent in July.
Coach Inc, which makes high-end leather goods, can attest to this.
"Coach's business continues very strong in all channels among the more value-oriented consumer and the premium consumer," said Coach's chief executive, Lew Frankfort. And Coach is not alone.
"No one is reporting any downturn," said Milton Pedraza, chief executive of research firm The Luxury Institute.
He said credit market problems were not enough to stop the rich from shelling out cash. But a dramatic drop in their stock portfolios could change that.
The institute says that 87 per cent of people with an average net worth of US$3 million ($4.42 million) and average income of US$288,000 have said a 10 per cent or more drop in their stock holdings would trigger a cutback on luxuries.
Nearly half (46 per cent) said it would take a decline of 10 per cent to 19 per cent, and 27 per cent said they could stomach a decline of 20 per cent to 29 per cent before they started cutting back on indulgences.
The Dow Jones Industrial Average and the Standard & Poor's 500 Index have both fallen more than 7 per cent in the past month, though they were up more than 1 per cent on Friday after the US Federal Reserve cut the discount rate, charged on direct Fed loans to banks, as the mortgage crisis widened.
"Young, wealthy consumers with a lot of income but no net worth [would] pull back, no question," Pedraza said. "They would begin to prioritise: 'Do I really need to buy the 500 version of the BMW? Maybe I better pull back to the 300 series'."
It is about priorities, after all. Wal-Mart Stores Inc's chief executive Lee Scott said it was "No secret that many customers are running out of money toward the end of the month".
The world's largest retailer, which relies heavily on working-class families, reported a lower-than-expected profit this week and cut its full-year forecast, saying economic pressures have slammed shoppers.
US consumers are showing signs of cutting spending as the housing market decline widens, mortgage defaults increase and energy and food prices climb.
- Reuters