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Luxury Retail a Bright Spot in Drab Global Economy

A look inside Phyllis Morris design showroom in Los Angeles, California.

As slow economic growth and high unemployment continue to stress the United States and other parts of the world, economists say many of the world’s wealthy are continuing to shop at designer stores, making big purchases. The global economy has also affected the luxury retail industry.

Luxury shopping

In the heart of Beverly Hills, tourists and the rich flock to Rodeo Drive -- a street famous for its designer brands and high-priced stores. It is where C.C. Hong and her family are spending their last week in the United States, before returning to Malaysia. “We think it’s a good time to buy right now,” she said.

Hong says the relatively low value of the dollar has made everything in the United States cheaper than in Malaysia. She just purchased a limited-edition Coach handbag, calling it a bargain. “About $650 U.S," she said. "Back home [it] probably [is] double the price.”

"This has actually been one of the few bright spots of the economy, mostly because it’s affluent consumers who continuously spend in this segment of retail,” Economist Armen Bedroussian stated. He is with the Milken Institute research center in California, and says that was not the case during the recent global economic recession. The wealthy curbed their spending.

Beverly Hills fashion designer Pol Atteu had to lay off all his employees. “At one point, I had over 35 people working for me. I was the number one seller at Saks Fifth Avenue [stores], I sold to Neimans [Neiman Marcus stores],” Atteu said.

As these luxury department stores suffered in 2008, Atteu’s relationship with them ended.

“If you’re looking at luxury retails like Saks Fifth Avenue, Neiman Marcus, Nordstrom, these types of retailers -- they took a big hit because a lot of their market were these aspirational wealthy, those who really save up and try and buy something that is a big treat for themselves," David Winter explained.

Winter is with the Luxury Marketing Council, which represents many of the world's major luxury goods and services companies. He says luxury shoppers are starting to spend again. But he says the ultra-rich around the world have not been affected by weak economies.

Supply and demand

“We are noticing every month, there seems to be more and more interest, bigger and bigger projects,” Jamie Adler said. Adler owns Phyllis Morris, a company that designs, manufactures and sells luxury furniture.

“Our beds start at $20,000 and they can go up to $60,000 to $70,000, depending on the finishes, the size of the bed, the fabrics, the detailing,” she added.

Adler says that although her clients in the United States stopped spending in 2008, her business overseas has grown. “I think the dollar became more attractive and I really do think that the Internet allowed visibility for American-made products to be showcased all over the world,” she stated.

“The high-end retailers, even when they were not doing well in Europe and in the U.S., were doing very well and continue to do well and are doing even better in Russia, India, China, Brazil, what we know as BRIC countries [Brazil, Russia, India, China]. They are the ones who are driving the world economy right now,” Winter noted.

But economist Armen Bedroussian cautions that recent economic turbulence will be felt in the luxury retail industry. “In the near term, [the] increase in the volatility given the recent downgrade in the U.S. credit rating, and the European debt crisis is [are] actually going to harm sales in the near future. However, I think the market would have to take a much more substantial hit for it to have a more meaningful impact on the luxury goods segment,” he stated.

Winter says the ultra rich are actually benefiting from the economic downturn. And they’re not just buying designers clothes. They are also investing in cheap real estate. “It’s the very rich people who are buying with cash and it’s also the ultra-high net worth individuals who are buying dozens of homes at a time because there’s a fire sale [i.e., at relative bargain prices]. The rich are getting richer,” he explained.

Malaysia resident C.C. Hong is not only on Rodeo Drive shopping for designer handbags. She is also in the United States looking for opportunities to invest in real estate.