Observing the Christmas carnage at FAO Schwarz, Bottega Veneta, and Bergdorf Goodman.
This is shaping up to be a dismal Christmas. The International Council of Shopping Centers, which is supposed to help promote the industry, last Thursday trumpeted an "awful beginning to the holiday season." Excluding Wal-Mart, retailers reported that same-store sales last month fell 7.7 percent, the worst November in recent history. The big crowds that stampeded (literally, sometimes) through the doors of big-box retailers on Black Friday have dispersed. Shoppers seem inured to the relentless Christmas spirit. The Boston Consulting Group says that half the households it surveyed are planning to reduce their Christmas spending, while only 10 percent plan to boost it. ICSC projects that holiday sales could actually decline in 2008, "which would be the weakest holiday-sales performance on record," says Michael Niemira, chief economist and director of research at ICSC.
But no indicator was quite so telling as the plaintive message left on my home answering machine over Thanksgiving weekend. A kindly Bergdorf Goodman salesperson invited members of our humble household to stop by and check out the bargains. Now, if you're not a habitué of the his-and-hers luxury department stores on Manhattan's Fifth Avenue, there are a few things you should know about Bergdorf Goodman. This place puts the haute in haute couture. It's about as welcoming to the public as North Korea. It's the kind of store where the salespeople take one look at your shoes and judge whether you're a big spender. Bergdorf Goodman cold-calling suburban shoppers? It's like college kids canvassing for Obama votes at a National Review conference.
But these are desperate times. During the late economic expansion, the well-off—and, in particular, the really well-off—thrived while the middle and working classes struggled. But in 2008, the stalwart customers of New York's luxury retailers have been falling along with the hedge funds. The investment bankers and their significant others? See ya. Rich tourists from points south and west? Not this year, y'all. Europeans and Brits fueled by their powerful domestic currencies? Adios, au revoir, cheers! Russian oligarchs? Da svedanya. In November, according to ICSC, luxury stores saw sales fall 10.5 percent. Neiman Marcus, which owns Bergdorf, reported sales were off 11.8 percent.
Strolling the half-mile of Fifth Avenue from Rockefeller Center to Central Park—the white-hot heart of the high-end American Christmas experience—you encounter the businesses that manage to separate more people from their hard-earned money more than any others. But crowds in these thrift-killing fields were relatively sparse last week (aside from the clutch of Citigroup bankers trying to present toxic mortgage-backed securities as collateral for loans from Salvation Army kettles). The Rockefeller Center tree, like everything else in New York this year, has been downsized. The 2008 Norway spruce is 72 feet, down from 84 in 2007. In Bottega Veneta, not a creature was stirring, not even a Vogue assistant editor. The Apple Store earlier this fall was so mobbed that hipsters had to take a number to enter the Shrine of Jobs. This time, I swept right in and didn't have to wait to pay. Across the plaza from Apple stands FAO Schwarz. In normal times, it's an anxiety-inducing miasma of kids, tourists, and flying plastic toys. Last Tuesday, it was an oasis of calm. I could have done yoga safely in the Lego section.
Why should we care where and how the well-off are spending? Well, the top 20 percent of households account for about 40 percent of discretionary spending, and the top 40 percent account for 74 percent of all discretionary spending, according to BCG. As go the rich and wannabe rich, so goes the nation. And while the residents of Richistan aren't moving to Pooristan just yet, they are cutting back. "Consumers who have money have decided they want to hold it in their pocket," says BCG partner Michael Silverstein. Luxury retailers have responded by acting like discounters. "In a better economy, customer service, quality, selection are the key selling points," says Ellen Davis, vice president at the National Retail Federation. "But this year it's really all about price." Saks, which specializes in imported finery, is taking a cue from domestic automakers and offering zero percent financing. A/X is advertising all sorts of merchandise as half-off.
But not all luxury retailers seem to have gotten into the 2008 Christmas-shopping spirit. At Bergdorf Goodman's men's store, tasteful signs advertised 40 percent off marked prices. Which meant, for example, that a lovely Brunello Cucinelli gray wool sweater was marked down from an astronomical $1,075 to a merely absurd $649. As I looked at a rack of dark blazers, I was flattered that a salesman actually spoke to me. "How much?" I asked. "Fortysomething hundred dollars," came the reply. I laughed. "That's Brioni," he said, "if it means anything to you." Why, yes it does, I thought. It means an insanely expensive product that probably won't sell much this year and, as a result, will fail to deliver fat commissions to nasty salespeople.
It's been fun. But next time, Bergdorf, don't call me. I'll call you.
A version of this article also appears in this week's issue of Newsweek.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at firstname.lastname@example.org and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.