Super rich seek new heights in pampering
NEW YORK --Forget about the $350 stilettos. Shoes with status these days come with $1,000 price tags. And $600 handbags have become so bourgeois. A-listers don't want to be seen with anything costing less than $5,000.
It's no secret that luxury sales have been booming over the past six years. But at a time when the average American is grousing about meager wage growth and feeling strapped by a 30-cent spike in the price of gas, splurging by the wealthy has risen to gaudy proportions as the super rich seek new heights in pampering, price tags and one-of-a-kind items that set them apart.
"There's this insatiable appetite for the most luxurious," said Faith Hope Consolo, chairman of Prudential Douglas Elliman's retail leasing sales division, who has brought European designers including Versace and Valentino to the U.S. over the past two decades.
Luxury sales worldwide topped $150 billion last year, of which 30 percent came from the U.S., where such sales have been rebounding after taking a pause following the 2001 terrorist attacks, according to Telsey Advisory Group's James Hurley.
While U.S. store executives say that the weakening dollar has fueled a surge of tourists from Asia and emerging countries like Russia, whom experts say tend to go for the bling, luxury stores don't have to just wait for foreigners. Sure, investment bankers and Internet entrepreneurs have kept luxury sales booming, but the latest source of new wealth are hedge fund managers -- the top 25 last year made more than a combined $14 billion a year, according to Institutional Investor.
And unless there's another major geopolitical event that sends shoppers hibernating, experts believe luxury spending -- growing at double-digit rates for many high-end purveyors -- won't lose momentum.
Some social experts warn the trend will only increase tensions between the haves and have nots.
The over-the-top splurging is happening at a time when the income gap between the wealthy -- those making more than $350,000 -- and everyone else is the widest since the Depression Era. And while the average American worker's income increased 4.6 percent in 2006, the wealthy have enjoyed double-digit gains.
There's some trickle down effect too. Waiters at tables with $3,000 tabs get their share of big tips. But as Carl Steidtmann, chief economist at Deloitte Research says, the biggest beneficiaries are artisan and small trade businesses, which are seeing the market expand as Americans' appetite for rare items increases.
According to Carol Brodie, chief luxury officer at CurtCo Media, the publisher of the Robb Report, whose annual issue features the year's best-of-the-best like a $330,000 Mikimoto golden pearl choker, the super rich don't want just the expensive. What they are looking for is the rarest item, something that is custom-made and the best quality. Unlike the 1980s and 1990s, "it's not about the logos," she said. "It shouts quietly."
Nevertheless, the price tags seem loud.
Montblanc recently sold a $700,000-plus pen just a few days after it showed up in the New York store. The pen, adorned with rubies, sapphires and diamonds, took 15 months to handcraft. At Cartier, $1 million to $2 million sales checks -- rare only a few years ago -- is occurring a couple times a month at its North American boutiques.
Frederic de Narp, CEO and president of Cartier North America, said the largest bill tallied by a customer on a single visit last year topped $11 million. He would not give specifics on the purchase.
And Bulgari reports that single purchases in the millions of dollars are becoming more common in the States as well.
Louis Vuitton this spring pre-sold its limited number of $40,000-plus handbags made up of a patchwork of samples from different spring and summer collections.
The bags cost only slightly less than the median household income of $46,326, as reported by the Census Bureau.
Designers and retailers are also going to new lengths to cater to these wealthy buyers -- Tom Ford's new store in Manhattan has a butler who will bring drinks or order lunch.
With luxury merchants generating at least $8,000 in revenue per square foot -- about 10 times what a middlebrow retailer takes, according to Consolo, these boutiques can afford the frills. But these stores can't afford to be snooty about who they serve.
As luxury companies expand their stores or open new ones in such major cities as New York, Las Vegas and Washington, and reach out into wealthier towns like Chevy Chase, Md., they have to be careful about giving all customers who walk in the door the VIP treatment. Even celebrities seem like to shop in Juicy Couture sweats.
"Stores have to be more welcoming regardless of who they are," said Jim Taylor, vice chairman of the Harrison Group, a marketing consultancy. He noted that based on a comprehensive Harrison study on the wealthy, most of the well-heeled interviewed say they have not been treated well.
Nevertheless, the prices on luxury goods keep going up as stores don't see any consumer resistance. The dollar's weakness against the Euro has also made European goods more expensive here. According to Kelly Bensimon, founding editor of Elle Accessories, only a few years ago, the must-have bag retailed for $500; now the "it" bags go for well over a $1,000.
Trend experts say the shoe designer du jour is Christian Louboutin, whose prices top $1,000-- most likely beyond the reach of most upper middle class women seeking to splurge.
"Whether it's a handbag, shoe, or watch, the price of keeping up has gone up," said Bensimon. "In order for you to be that woman, you have to have a serious bank account."
Allison Weiss Brady, 36, a venture capitalist and philanthropist who is on the board of her family foundation, said she likes to be practical when buying handbags preferring to buy bags in basic colors. Still, she spends $20,000 per season on accessories and typically spends $5,000 per bag, much more than the $2,000 she used to spend a few years ago.
Among Brady's most prized finds recently are a pair of $11,000 earrings at Judith Ripka and a multicolored lizard Fendi handbag for $4,960.
Keri Frame, director of stores at Wynn Las Vegas, who oversees the 22 Wynn-owned stores in the luxury resort -- including Manolo Blahnik, Gaultier and a Ferrari dealership -- agreed that increasingly customers are looking for items almost no one else has.
Frame noted that it takes four years to make Jean Dunand watches sold at Wynn & Co. Jewelry, and 16 were made this year. Wynn has sold four of those ranging in price from $350,000 to $575,000 so far this year.
That leaves the hoipolloi who want to have the latest runway item feeling inadequate, or going into debt to try to keep up.
Nadine Absolam, a 32-year-old Brooklyn resident, says she likes to have the trendiest designer items, but she said it's getting harder to come up with the cash.
"My first priority should be my bills. But these designers bring out so many hot items that you must have these things," said the Pilates instructor. "I am always late with my bills." Absolam spends about $1,000 in clothing and accessories per month, about half of her monthly salary. One of her most recent buys was a $1,100
"I can't keep wearing my Spy bag. I have to change it," to look fresh, Absolam said.
Others like Jennifer Sandovan, 28 of Yonkers, N.Y., say they just don't want to be part of it.
"I think it's a waste," she said. The most Sandovan pays for a handbag is $50.
If the average American doesn't want to dig themselves into debt, that may be the most they should spend. But for the well-heeled, spending $3,000 for an accessory doesn't make much of a dent.
According to an analysis of the latest IRS tax data available by Prof. Emmanuel Saez, the University of California, Berkeley economist with Prof. Thomas Piketty of the Paris School of Economics, those in the top tenth of a percent reported an average income of $5.6 million in 2005, up $908,000 from the prior year; the top one-hundredth of a percent had an average income of $25.7 million, up almost $4.4 million from the year before, according to the study.
Meanwhile, real reported income in the U.S. rose 3.4 percent in 2005 on average but the average income for those in the bottom 90 percent fell slightly compared with the year before, according to the study.
John Vogel, faculty director, Allwin Initiative for Corporate Citizenship at the Tuck School of Business at Dartmouth College, said such disparity doesn't bode well for society.
"We build a society around the middle class and as the middle class gets stretched and shrinks there are significant implications," said Vogel. If the ideal life is owning a pair of $1,000 shoes, that's "a terrible ideal for young people."
A growing number of stores and shoppers are seeing the need to give back, however. Brady, the philanthropist who divides her time between Miami and New York, prefers to shop at stores where a portion of sales goes to a charity.
And who knows how the younger generation will prioritize luxury?
Francois-Henry Bennahmias, president and CEO of Audemars Piguet North America, which sells watches that average about $40,000, does wonder about how his 11-year-old daughter's generation will view luxury spending.
"Will she want a watch, or will she want to spend on the environment?" asked Bennahmias. "You don't know what the youth will go for."
AP Reporter Kathleen Hennessey in Las Vegas contributed to this report.