The bumpy global recovery is pinching the world's 1 per cent, and the bling industry in turn.
Rosy forecasts about sales of some high-end luxury goods are suddenly withering, highlighting the growing caution among the rich in the U.S. and Europe.
A surprise announcement on Tuesday by Tiffany & Co. , the world's second-largest retailer of luxury jewellery, shows just how quickly the outlook has deteriorated.
The New York-based company said that holiday sales "weakened markedly," forcing Tiffany to cut its earnings forecasts exactly six weeks after it had raised them. The company's stock price plunged and dragged down shares of high-end retailers such as Abercrombie & Fitch Co. , Coach Inc. and Zale Corp.
The prospects of lower Wall Street bonuses, tens of thousands of job cuts across the global financial industry and a sense that Europe is falling into recession are challenging the view that the wealthy can keep on spending. Rich consumers had been regarded as immune to economic turmoil, but Tiffany's outlook shows that the wealthy are feeling the ripple effect of high unemployment, sluggish economic growth and a volatile stock market.
"I don't know anything about immunity because Wall Street bonuses were clobbered, and … the decline in the stock market was felt far beyond Wall Street," said Bernard Sosnick, an analyst with New York-based Gilford Securities Inc. who has followed U.S. consumer-related stocks for five decades.
The debt crisis in Europe and the prospects of slowing growth in China are contributing to the shift in spending among those with large stock portfolios, said Kenneth Wong, professor of marketing at Queen's University's school of business.
As well, awareness is rising over the growing "disparity of incomes between the rich and the poor. So even if they could afford it, this wasn't really an opportune time to be flaunting wealth."
Tiffany sells goods such as $11,000 gold and amethyst earrings and a $71,500 necklace in platinum studded with diamonds.
After better-than-expected business in the first three quarters of 2011, the retailer's "sales weakened markedly in the United States and Europe during the holiday season, reflecting restrained spending by consumers for fine jewellery," Tiffany's chairman and chief executive officer, Michael Kowalski, said in Tuesday's statement.
Mr. Kowalski cut his estimate for earnings per share in the fiscal year ending Jan. 31 to $3.60 (U.S.) to $3.65, from a November forecast of $3.70 to $3.80. That's a reversal from late November, when the company raised its forecasts.
Among the factors weighing on jewellery stores is the squeeze on profits in the financial sector, which has been hard hit by increased capital requirements and reduced income from investment banking. That is cutting into bonuses among bankers and feeding a growing sense of caution among some well-heeled customers for luxury goods.
Total compensation at Wall Street banks is expected to be the lowest since 2008, the Wall Street Journal reported this week. Many partners at Goldman Sachs Group Inc. , for example, will see their 2011 pay cut at least in half from the prior year, while some will see no bonuses at all, the paper said.
Tiffany's flagship store in New York City, which generates about 8 per cent of the company's worldwide sales, saw revenue decline 1 per cent over the holiday period, the jeweller said.
Tiffany's worst performing region was Europe, where the continent's debt crisis and sickly economy are hammering banks and their employees. Britain's financial firms are expected to chop 11,000 jobs in the first three months of 2012, up from 9,000 in the final quarter of 2011, a U.K. survey this week showed.
At least one Canadian retailer also saw easing business over the holiday season. Birks & Mayors , which operates luxury jewellery stores in Canada and the United States, said this week that while same-store holiday sales rose 3 per cent from last year, momentum tapered off in December.
"During the final weeks before Christmas we experienced strong declines in customer traffic in our stores," said Thomas Andruskevich, president and chief executive officer, in a release. "As such, our sales increases during the holiday period were somewhat softer than what we would have liked to see."
With reporting by Kim Mackrael.