Financial crisis scuffs well-heeled shoppers

By Martinne Geller

NEW YORK (Reuters) - Susan Coyne had her heart set on a new pair of earrings at Saks Fifth Avenue in New York, a purchase she would not have thought twice about even a few weeks ago.

But on Tuesday, she could not go through with it.

"I felt guilty about buying them. All my investments are down," said Coyne, who has been a Saks Inc sales associate for 31 years. "People are scared. I'm a big shopper here, too, but I'm holding back."

Luxury shoppers such as the Saks faithful make up only a small, elite portion of the U.S. economy, but tend to have an outsized effect on spending. They have kept their wallets open long after middle-income shoppers shut down under the pressure of a housing slump and rising food and fuel prices.

But now the last bastion of consumer strength finally appears to be caving due to the global financial crisis that has assaulted investment wealth as well as real estate values.

Even if a consumer still has millions in the bank, psychology plays a big role at the cash register.

"Of course you can continue to afford it," said Eva Jeanbart-Lorenzotti, chief executive of Vivre, a luxury goods catalog and online store whose wares include a $45 sterling silver ice cream spoon and a $3,800 mink chair. "Whether or not you feel like doing it is another question."

Luxury sales -- including those at high-end department stores and restaurants -- fell 4.8 percent in September versus an 11 percent rise in August that was boosted by foreign tourists, according to SpendingPulse, the retail data service of MasterCard Inc's MasterCard Advisors.

Looking ahead, more than three-quarters of families with a net worth of $1 million to $10 million said they planned to spend less on luxury items through year's end, according to a survey of 439 families conducted in late September by research firm Prince & Associates.

LOST SPLENDOR

The sinking stock market ultimately cracked luxury shoppers' confidence in September.

Charles Grom, retail sector analyst with JPMorgan, calls it the "CNBC effect," referring to the cable business channel where would-be shoppers watched in horror as their investments went up in smoke.

Restoring a sense of confidence could take time. Banking crises are usually followed by two years of subpar economic growth, and that does not bode well for stocks.

Grom said September sales were probably lousy at luxury chains including Saks as "aspiration shopping has screeched to a halt and higher-income consumer spending drops with the stock market." Same-store sales results are due on Wednesday and Thursday.

That could take a new toll on retailers as they head into the crucial holiday shopping season, with the gloomier forecasters predicting the weakest season in 17 years.