KEY POINTS:
As I stared into the glitzy fashion and jewellery shops that line London's New Bond St, one of the most expensive shopping districts in Europe, it slowly dawned on me that something didn't feel right.
Then the penny dropped: here I was, in the middle of a weekday afternoon in the heart of the most fashionable, cosmopolitan city in the world, but it was eerily quiet.
A handful of Korean students glanced into shop windows belonging to Armani, Cartier, Louis Vuitton, De Beers and Asprey, but, in truth, they were looking for Hyde Park, not expensive presents to take home to Seoul.
A few Brits were nonchalantly walking back to offices in the surrounding area, but they seemed distracted by other things. And then something else struck me: if New Bond St was quiet, then the inside of the shops would be almost empty.
In some, there wasn't a customer in sight. True, it was still August and a lot of people were away, but was this normal? Or was the credit crunch finally taking its toll on even the super-rich?
Micky Provost, who has been at Armani for seven years, was in no doubt: "Things have quietened down quite a lot actually. There is still a lot of custom from overseas visitors, especially from the Middle East and China, but not so many British, Europeans and Americans."
He says it is more than an August phenomenon.
"The slowdown has been gathering momentum all year. Twelve months ago this street was buzzing: people would come in and buy half a dozen suits; today one or two is enough. That said, last Saturday, someone came in and bought two £1700 sheepskin coats, so the market's a long way from dead."
A few blocks away in an upmarket art shop, Opera Gallery, where paintings by impressionists sell for £2 million-plus, manager Didier Viltart says: "There is strong demand for classical work, but less so for contemporary art, which some investors view as more risky." A sign of the times? "Perhaps," he concedes.
At Ledbury, a research agency that claims to understand "how the wealthy live and spend their money", director Marc Cohen says "the affluent are not immune from the credit crunch, by any means. They have invested heavily in property and the shares markets - and both have taken a knock in the last year, so they are bound to be feeling less well off".
But Cohen says that the market is complex and that while billionaires have cash to burn, many luxury goods companies are dependent on a "broad belt" of money coming in from people in the developed world "who have either inherited relatively moderate sums, or command good salaries and bonuses".
It is these people who are reining back, but the slack is being made up, in part, by increasing wealth in emerging markets. Still, the mass luxury goods companies are presenting an uneven picture.
At the turn of the year, London-listed Burberry warned that it could miss profits targets, and its shares were hammered. In April, Gucci said its Double G range, which covers handbags and watches, saw sales drop by more than 3 per cent.
But a month ago, LVMH, whose stable includes Louis Vuitton, Dior and Veuve Clicquot, saw a healthy rise in both profits and sales. Its finance director, Jean-Jacques Guiony, said Japan remained difficult but that revenue elsewhere in Asia had jumped by 25 per cent.
Italian jeweller and watchmaker Bulgari on the other hand issued a profits warning. On Friday, Gucci and Hermes posted a strong set of new figures.
One explanation for the mixed reports is exchange rates.
The weak dollar has depressed US sales of European luxury goods companies which report in euros, so the figures are hit on translation. That the numbers have held up as well as they have is due to two factors, according to Ledbury.
First, the weak dollar is attracting wealthy foreign tourists to America with money to spend. Second, although the US is home to 30 per cent of the world's richest individuals, the average per capita spend on luxury goods in the US is far lower than in the UK, France and Japan. Part of the problem has been lack of stores, rather than lack of demand. As a result, store roll-outs across America have been a key strategy for the luxury brands this expansion has cushioned from the downturn.
Observers caution that it's as well to keep the luxury-goods sector in perspective. Don't forget, they say, that banks, retailers and housebuilders have seen their share prices collapse by 50-80 per cent since the credit crunch hit a year ago; in comparison, the luxury goods sector has held up remarkably well.
UBS analyst Yasuhiro Yamaguchi suggests taking LVMH as the bellwether; its shares are down by only 20 per cent since July 2007 and that figure applies, roughly, to the sector as a whole.
Antoine Colonna, luxury goods analyst at Merrill Lynch, says brand strength is the key.
" Star brands such as Gucci, Vuitton, Chanel or Prada will always outperform their peers in a difficult market in the handbag category, just like wannabe players will continue to underperform in the shoes category. "
Like Cohen, he divides the wealthy into the super-rich, whose activities do not have a great impact on the profits of big luxury brands such as Armani and Cartier, and "salaried people" who are more likely to feel the pinch.
But Cohen makes the point that psychology can play a role in the spending habits of the extremely affluent.
"With the economic outlook so uncertain and lay-offs accelerating, some who could spend extravagantly are deferring their decision saying: 'In times like these, I don't want to seem ostentatious, I'll wait till the credit crunch blows over."'
For analysts at the large broking houses, however, the big question is whether expanding demand for luxury goods in emerging markets will offset losses if the US and Europe fall into a prolonged recession. The answer is almost certainly "no".
Emerging economies are already cooling in response to falling international demand. And as JP Morgan points out, developing countries account for only 18 per cent of all luxury good sales with China representing just 6 per cent.
It's the same with luxury goods as with most other things: if America sneezes, the rest of the world catches a cold. How badly, though, is difficult to gauge.
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