Luxury Shame

Multimillionaire Michael Hirtenstein used to flaunt his acquisitions of opulent real estate. "I collect homes because I enjoy it," he once told DansHamptons.com about his eight properties—which included a $27 million apartment on the 76th floor of Manhattan's Time Warner Center. In August 2007, the 45-year-old Hirtenstein, who made his fortune in telecommunications, regaled the New York Post with his plans for a $35 million, glass-enclosed duplex in Manhattan's Tribeca neighborhood, replete with suede-covered walls, three living rooms and a heated pool with built-in underwater video screen. Alas, the economy ground to a halt, and so did Hirtenstein's conspicuous consumption of real estate. He quietly reneged on the Tribeca duplex, forfeiting a hefty deposit. That isn't to say Hirtenstein is now selling pencils from a tin cup. "I could walk downstairs now and buy a Ferrari," he says from a suite at Wynn Las Vegas, which boasts a dealership. "But all of my friends are hurting. I don't feel like buying random toys."

Across America's upper strata, rich folk like Hirtenstein are experiencing an unfamiliar emotion: luxury shame. The late Coco Chanel, doyenne of 20th century fashion, long ago said that luxury is "the opposite of vulgarity," not of poverty. But in these recessionary times, it seems vulgar to flaunt one's luxurious lifestyle. And so the wealthy are going blingless and eschewing the spending sprees of the recent Gilded Age, giving new meaning to the phrase "embarrassment of riches."  The trend is horrible news for the $175-billion global luxury market, which is already absorbing the blows of plummeting personal wealth. Just in time for Christmas, this new "embarrassment of riches" is cutting into sales of high-end retailers and brands like Neiman Marcus and Saks Fifth Avenue, Bentley and BMW, Christie's and Sotheby's.

As hard-hit luxury advertisers scrimp, the sheen is dulling on the glossy, overcrowded, and once ad-rich collection of media that caters to the rich and famous. Ads in the December issues of major luxury magazines have plunged 22 percent from 2007, Media Industry Newsletter reports. Conde Nast—publisher of Vanity Fair, W and Vogue—is cutting issues of Men's Vogue and the new business glossy, Portfolio. Robb Report, the bible of connoisseur tastes that enjoyed years of prosperity during the era of hedge-fund billionaires, has watched its advertising freeze. At American Express Publishing, which owns Travel-Leisure and Departures magazines, among others, "ad sales just hit a wall" after years of growth, says Ed Kelly, CEO.

Unofficially, profligacy became passé on Oct. 6, when disgraced Lehman Brothers CEO Richard Fuld appeared at a congressional hearing after the firm's historic $600-billion bankruptcy. He encountered a blizzard of scorn over his half-billion-dollar compensation and baronial lifestyle: a $21 million Park Avenue penthouse, a $25 million estate in Greenwich, Conn., and an estimated $200 million art collection. "I have a basic question for you: Is this fair?" asked Rep. Henry Waxman. Fuld only could muster sheepishness. (This month, he auctioned off $20 million of his art collection.) Not long after Fuld's public pillorying came the shameful disclosure that troubled insurer AIG had lavished top employees with a $440,000 spa retreat at a ritzy St. Regis resort—held after Uncle Sam stepped in with a bailout that is costing taxpayers $150 billion.

Now, up and down Wall Street, the rich are showing off newfound contrition. Last month, Steve Schwarzman of private equity firm Blackstone Group expressed regret for the $3 million he spent on his 60th birthday party in February 2007—an event that politicians and the press won't let him forget. "Obviously, I wouldn't have wanted to do that and become, you know, some kind of symbol of sorts of that period of time," he told a media conference in New York. Schwarzman, whose Blackstone stake totaled $8 billion in June 2007, is down to his last $2 billion to $3 billion on paper as a result of the stupefying drop in the stock market.

This new frugality is also taking the gleam off Tinseltown. "Would I go out and buy something showy? Not at a time like this," says one of Hollywood's richest moguls. "It would be like bragging. "At Disney, top film marketers reportedly are agonizing over the planned Valentine's Day release of "Confessions of a Shopaholic," about a young, brand-obsessed woman. They reportedly are considering reworking the ending of the film to address today's harsh economic realities. And Washington is suffering pangs of debt regret. One caterer there likens the current wave of inconspicuousness to an earlier time.  "It feels like after we went to war with Iraq," says Mark Michaels, owner of Occasion Caterers. "It's not a wise thing to throw a big jolly party. "In real life, meanwhile, fashionistas are throwing on off-priced frocks and remodeling themselves as "recessionistas."  Michelle Obama recently wore a $400 ensemble from J. Crew on "The Tonight Show," instead of a designer dress.

Calling this the Death of Luxury would be a grand embellishment. Consumers have taken a respite from opulence before—for example, when the Greed-is-Good era died with the '87 market crash, and after 9/11—only to shop with a vengeance after a respectable amount of time had passed. Natural-born shamelessness assures the survival of extravagance: Sean Combs, for one, would cease to exist were he to leave the lap of luxury. And why should the wealthy elderly, facing actuarial fate, embrace asceticism in their waning years?  Some upscale purveyors believe luxurious living, like cigarette smoking, is an unshakeable habit. "It's very difficult to go downward... once you get used to this level of service," says Julian Niccolini, managing partner of New York's Four Seasons restaurant.

Patrons as unfathomably affluent as some of his regulars ( David Koch, $17 billion, estimates Forbes magazine; Ron Perelman, $9.5 billion) are seen by luxury goods marketers as conspicuous consumers of last resort. They are among the world's 10.1 million "HNWIs" (high net worth individuals) with $40.7 trillion in combined assets, according to the World Wealth Report 2008 from Merrill Lynch and Paris-based consultant Capgemini. "We're dealing with an area that's beyond wealth," says Bill Fischer, a luxury travel agent. "If someone loses a couple $100 million in the stock market,  his lifestyle stays the same. They always want what they want when they want it."