August 20, 2008
Steve Thorne, 54, watched approvingly as his girlfriend tried on a pair of boots at the Jimmy Choo boutique on Rodeo Drive last week.
"I can't complain," he said when I asked how the economy's been treating him. With sales of new cars down, Thorne said, his 600-employee replacement-parts business in Philadelphia has had a record year, and he's doing better than ever.
"Things are good," he said. "Absolutely."
Gas and grocery prices may be more than many working-class families can bear, home foreclosures may be soaring, but life is just fine at the loftiest heights of the economy.
At least that's the view from Beverly Hills, where I spent a recent afternoon popping into pricey boutiques and chatting with retailers and shoppers.
"Business has been crazy-great," gushed Kim Gregory, manager of the Christofle shop on Brighton Way, purveyor of silver flatware and other furnishings. "It's like Christmas in here."
Shortly before I arrived at her store, she said, a customer purchased $10,000 worth of knives, forks and spoons. Last month, sales were up 45% from a year earlier.
"Most of my clients have those black American Express cards, the ones made out of titanium," Gregory said. "They don't worry about their mortgages. They don't worry about recession. They just want to buy."
Across the road, Joshua Gosline, a salesman at the Cesare Paciotti shoe shop, said he sold $4,000 worth of footwear to a customer a few weeks ago (which at Cesare Paciotti means only five or six pairs).
"We have a steady clientele," he said. "The people we do business with aren't affected by the economy."
According to the consulting firm Bain & Co., North America accounted for a third of the world's $233 billion in luxury-goods sales last year.
Not all those purchases were made by well-to-do Americans and Canadians, of course. Retailers in Beverly Hills said they were seeing a lot of business from European travelers with pockets full of super-strong euros, as well as visitors from Saudi Arabia flush with record-high oil profits.
"Saudi princesses," confided a saleswoman at one Rodeo Drive clothing store she didn't want named. "That's who's doing all the buying."
In fact, each store I visited had a different take on the prosperity washing over the area. Some credited local customers with remaining loyal to particular brands. Others said they were being kept afloat by visitors from abroad.
Bottom line: There's plenty of money to go around.
"In the context of the challenges the nation is facing, Beverly Hills is faring very, very well," said Dan Walsh, president of the Beverly Hills Chamber of Commerce. "Demand for high-end luxury remains strong."
David Winter, president of the Luxury Marketing Council of Southern California, echoed this sentiment.
"The upper class, those who have a liquid net worth above $1 million, are basically immune to economic fluctuations," he said.
"Let's say you have a net worth of $100 million and you lose half that amount. You'd still have a net worth of $50 million. And you'd still go shopping."
Winter said the only storm cloud most luxury-goods retailers have seen has been a pullback by the so-called aspirational wealthy, people with a liquid net worth below $1 million. They tend to shop at high-end department stores like Saks Fifth Avenue.
On Tuesday, Saks Inc. reported a quarterly net loss of $31.7 million, compared with a loss of $24.6 million a year earlier. The company lowered its sales forecast for the second half of the year.
An Internal Revenue Service report obtained by the Wall Street Journal in March showed that the 400 richest Americans -- those with incomes of at least $100 million -- controlled 1.15% of the nation's wealth as of 2005, or twice the amount of a decade earlier.
Thanks to President Bush's tax cuts, though, the average income tax rate for the mega-wealthy fell to 18% from nearly 30% over the same period.
Also in March, the Beverly Hills Chamber of Commerce hosted a "luxury summit" for high-end businesses. Panelists generally agreed that sales would remain robust thanks to the rich getting richer. But they warned that if the overall economy remained sour, the gloomy sentiment could eventually "trickle up" to places like Rodeo Drive.
Perhaps it's already arrived for some. Signs were up at the Bernini clothing store announcing that prices had been slashed by as much as 70%. Men's shirts that normally go for $100 were selling for $30.
"It's unbelievable," said salesman Basil Jreisat. "We used to have customers who would spend $10,000, $15,000, $20,000. Not anymore."
In another sign that Beverly Hills isn't immune to change, I watched as dozens of gawkers gathered outside the Fendi branch on Rodeo. Cars stopped in the middle of the street and people held cellphones aloft trying to snap pictures.
Why all the fuss? Reality-TV star Heidi Montag was buying a handbag.
"I could understand if it was Madonna or Janet Jackson," sniffed Dominik Was, a salesman at a nearby clothing shop he didn't want named. "But Heidi Montag?"
I asked how things were at his store.
"Oh, we have wealthy, healthy clients that can afford this stuff," Was replied. On Valentine's Day, he said, one customer purchased $120,000 worth of clothing.
"The economy affects working-class people like us," Was said.
"But wealthy people, it doesn't affect them."
Gradually the crowd at Fendi dispersed. The celebrity sighting was over. There was shopping to do.
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