For anybody who’s been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when society are worrying about the rising cost of food and are scrimping to fill their gas tanks, high-priced doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods.

Saks Fifth Avenue (NYSE: SKS)and Neiman-Marcus, two of the bigger high-end retailers, reported massive quarterly profit gains in the end of 2007, but are now acknowledging that their gains have reduced considerably in 2008. Obviously, part of that is the standard post-Christmas drop, but there has additionally been a meaningful slowdown in year-to-year growth. In 2008, Saks is anticipating a minor increase by 2007’s sales, but a slight decrease in gross margin.

Part of that is due to a reduction in expenditures by “aspirational shoppers,” or humans who can’t really afford super-luxe items,

but occasionally buy them besides. What’s particularly interesting, though, is that super-rich customers are additionally cutting back on their purchases, a trend that some analysts attribute to a contagious feeling of profitable concern. In other words, the overall belief that the economy is approaching a recession is reducing spending even among citizens for whom the profitable slowdown isn’t a urgent concern. In light of that trend, Saks’ stock price has dropped from nearly $21 in the beginning of the year to under $13.

In that context, it looks like the next year will be hardy for manufacturers and importers of high-end luxury items. After all, whether the society who can actually pay top dollar are cutting back, what will happen to the citizens for whom luxuries are a splurge?

Original post by Bruce Watson

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