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As recession stops splurges, luxury retailers retool

Name brands out, high quality in

By Jenn Abelson
Globe Staff / January 26, 2010

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Liz Wyman is done splurging on indulgences like a $300 leather Michael Kors bag and a pair of $575 black suede Cole Haan boots.

Instead, the 46-year-old state lawyer in Maine is scrimping however she can, tossing out catalogs from Neiman Marcus and avoiding Saks and Nordstrom at all costs. With her income eroding, she says, “I have to walk away.’’

Wyman is emblematic of the “aspirational shoppers’’ - middle-class consumers with luxury tastes - who have disappeared during the Great Recession. Their newfound frugality has contributed to an estimated 16 percent plunge in luxury spending over the past year, according to a report by Bain & Co.

But retailers are not giving up so easily; they are trying to rekindle middle-class America’s love affair with luxury by working with designers to create lower entry prices for high-end brands like Gucci and Christian Dior.

Bloomingdale’s last week unveiled plans to launch upscale outlet shops for the first time this fall. And other merchants are spinning a new kind of luxury - quality goods without designer labels that can last for several seasons and don’t break the bank.

“There was a catastrophic dropoff in demand,’’ said Michael Silverstein, a senior partner at the Boston Consulting Group, which estimated that middle- and upper-middle-income households accounted for up to 70 percent of luxury spending a few years ago. “Great retailers have taken it on the nose.’’

When Sari Brown opened LuxCouture, an upscale handbag shop in Newton, in July 2008, she thought the business would be an easy sell. Her online boutique had been ringing up $2,500 purses - four or five at a time - on the credit cards of customers, even high school students from California using their parents’ plastic.

“It was a free-for-all,’’ Brown said. “It was ridiculous the way we were selling them.’’

But almost overnight, the economic meltdown changed everything. Gone are the floor-to-ceiling shelves filled with designer purses like Pauric Sweeney’s $2,300 “Overnight’’ bag (donned by Lindsay Lohan) and the $3,500 Nuti purse made of ostrich leather fashioned in Italy. In their places are racks of clothing showcasing $125 Italian knitwear and $295 petal skirts. The handbags now cost $1,200, on average, and some as little as $125. Brown now has to sell double the inventory in order to meet her goals.

Steve Sadove, chief executive of Saks, said his company is promoting a private-label men’s collection that offers upscale garments like cashmere sweaters for hundreds of dollars less than designer brands. And the chain, which saw sales drop about 15 percent last year, is also featuring exclusive designer lines with lower prices, including one from Zac Posen. Although Posen’s namesake runway label costs $900 to $6,000, Z Spoke, made just for Saks, will start at about $80 for a T-shirt.

“The aspirational customer, if they are shopping, is looking for value,’’ Sadove said.

Some merchants, like National Jean Company, believe the shift in spending by aspirational shoppers may be permanent, and are adapting their business for the long haul.

Over the past few months, National Jean Company, which has stores in Wellesley, Newton, and West Hartford, Conn., has introduced its own, less expensive store brand under the label National Jean Boutique.

Now, the shops are offering more $85 tops and $150 dresses made from imported Japanese silk, and fewer $250 silk shirts and dresses from designers like Tucker and Elizabeth James. By the fall, National Jean Company is planning to introduce a private denim line starting at $89, at least $100 less than some of the designer labels.

“The obsession with the brand name - that’s passe. People don’t want to spend the extra money for it,’’ said Steve Simon, owner of National Jean Company. “Three years ago, people spent $500 on a designer dress like it was nothing. Those days are gone. And they are not coming back.’’

Melissa O’Shea of Medford wistfully recalls her most beloved extravagance - her first pair of Manolo Blahnik leopard heels, a $700 splurge she charged to her credit card in 2007. It was the same year O’Shea left her full-time job fund-raising for a nonprofit to start her own business, a social club called Hello Stiletto Shoe Club. The recession soon followed.

That meant slowing down spending on her own collection of 200 shoes. These days, O’Shea, 38, is carrying a smaller credit card balance and, facing a tighter budget, she has put an end to her days of shopping as a hobby. Even her wine habits have changed.

“Before, if I wanted to spend $20 or $30 on a bottle of wine, I did it and didn’t think twice. Now I know to get a nice bottle for $11,’’ O’Shea said. “I absolutely have to think twice and plan for any luxury purchases. And they have to be on sale.’’

At a meeting of the Hello Stiletto Shoe Club on Thursday, about 40 women - whose professions ranged from construction to personal health - crowded into a small room at the Capital Grille in Burlington. They sipped wine, admired each other’s fancy footwear, and lamented what they could no longer afford. The women took a break to strut down a short red carpet and show off their Christian Louboutin espadrilles and Jimmy Choo patent leather boots - almost all bought during better times.

In the corner, longtime club members Sheila Richards and Ali Santarlasci refused to hit the runway for the first time. Two or three years ago, they would buy shoes just to debut at Hello Stiletto gatherings.

Now, Richards, who does interior design work and historical reconstruction, is browsing consignment shops and searching websites to swap shoes with other women. Santarlasci was wearing the $39 black suede Bandolino mules she bought at Marshalls a few weeks ago.

“I won’t walk that runway in Bandolinos,’’ Santarlasci said. “I’ll just look at the nice shoes from here.’’

Jenn Abelson can be reached at abelson@globe.com.