As a luxury retailer, does it matter to you if the boom goes bust? Instinct says “of course,” but going by recent economic history, perhaps it matters less than you think.

Remember the Oct. 19, 1987, crash, when the stock market plunged 23%, wiping out a half trillion dollars in capital? “Black Monday” was an unnerving experience, all right, but the market fully rebounded within 15 months and the overall impact on high-end jewelry sales was negligible. In fact, Tiffany & Co. reported fourth-quarter ’87 sales were 20% higher than the previous year, while same-store sales grew 23% in 1987 and 20% in 1988. Neiman Marcus, which serves roughly the same clientele with clothing, jewelry and other luxury goods, saw a significant slowdown in buying for a week after Black Monday, but sales soon recovered.

Henri Barguirdjian, currently president and CEO of Van Cleef & Arpels, was president of Harry Winston Inc.’s retail division in 1987. As he recalls, the firm suffered a slight impact on sales for barely a quarter. And Ralph Destino, chairman of privately held Cartier Inc., says that business in 1988 was 20% ahead of the previous year.

The minimal impact on luxury retailers was due, in part, to the fact that few people were in the stock market, says Jay J. Meltzer, managing director with LJR Redbook Research, a New York firm that monitors retailers. Also, he says, the crash was “sudden and corrected itself quickly.” The real problems came with the 1990-1991 recession; likewise, analysts today are more concerned with how, not when, the good times slow down.

Drawing lessons from the 1990-’91 recession is tricky. Its impact was compounded by the 10% luxury tax on jewelry priced above $10,000 (which took effect Jan. 1, 1991, and was repealed two years later), and by the Gulf War during early 1991. “The entire retail business was squeezed, and the severe recession affected not only luxury goods but anything that could be construed as a deferrable expenditure,” says Meltzer.

Sales of jewelry and watches priced at $10,000 and above plummeted by 40.3% in 1991, according to research conducted at the time by SMR Inc., an economic consulting firm. Same-store sales for Tiffany & Co. fell 1% in 1990, dropped another 6% in 1991 and rebounded slightly (3%) in 1992. Similarly, Neiman Marcus saw its same-store sales grow only 1.6% in 1991 and 1.7% in 1992, rising to 7.7% in 1993. “What really killed us was the combination of the Gulf War, the luxury tax and the recession,” says Van Cleef’s Barguirdjian. “The business for pieces priced at $50,000 and up really suffered. It was a big shock.”

Spending on other types of luxury goods also fell. Pleasure boat sales, for example, declined 4.5% in 1990 and another 8.9% in 1991, not rebounding to pre-recession levels until 1995. Spending on personal aircraft dipped 4.2% in 1990 and dropped another 8.7% in 1991, again not returning to pre-recession levels until 1995.

“Previous market downturns have triggered cutbacks in luxury spending,” notes Jeanne Hanley, a principal with Capital Reflections, a North Granby, Conn.-based independent research firm. “In the early ’90s, people really got nervous about the market, and there was a pullback from outrageous spending. There was a back-to-basics type mentality. People didn’t buy things unless they were essential and durable, and this has shaped how rich people spend their money now.”

The trend currently manifests itself as “a quest for value” in high-end goods, she says, with a move toward simplicity in jewelry design that mirrors home furnishing trends. There the current hot market is for Shaker and Mission styles, as well as for luxury items that can be viewed as utilitarian – such as $7,000 kitchen stoves and fine pens.

When the ’80s boom market popped in 1987 and then slipped into a recession in the early 1990s, the underpinnings of wealth were less stable, and differed from today’s on virtually every count. Then, interest rates were high and heading higher; now the opposite is true. Savings and loans institutions were unraveling, along with the real estate deals they had underwritten. Now, banks are highly selective in making loans, and real estate prices are climbing. Inflation was high then, and the dollar weak internationally, while inflation now is low and the dollar’s strength continues to build.

Much of the “go-go” ’80s culture of flamboyant, in-your-face wealth was based on a speculative bubble. Some people’s wealth was tied directly to Wall Street, their collective net worth gyrating on a wild ride in tandem with the market. But most of those who had achieved prosperity were entrepreneurs who had built their own enterprises over a long time. Compared to the newly rich today, the affluent of the Eighties were older and had worked longer. They were part of the Depression-era and baby-boom generations.

“There was much more homogeneity and peer conformity in spending then. There was also much more conspicuous consumption among the rich in the ’80s, even though that’s a middle-class concept,” observes George Rosembaum, CEO of Chicago-based Leo J. Shapiro & Associates, which analyzes trends for retail and fashion clients.

Today’s affluent, he says, are younger folks whose wealth largely grows out of technology or start-up companies. Highly educated and having grown up during a period of social change, “they’re much more individualistic and less subject to the dictates of fashion or taste arbiters. They’re freer spirits. The trick now is to figure out what they want in the way of luxury goods.”

One thing is certain, however, and that is that they definitely do want luxury goods. Here are some signs of how good the times are:

• In the last 12 years, the number of millionaire households has tripled to more than 3 million.

• The number of households earning at least $100,000 grew 36% in the past decade, with more than one in 12 now in this bracket.

• Consumer confidence is at a 28-year high, supported by a strong job market.

• The Dow Jones Industrial Average recently cleared the 9000 threshold.

• The boomer generation is reaching – or already in – its peak earning years.

The impact of these cumulative factors, says Meltzer, is “a barbell economy with the upper end and lower end growing much faster than the middle, where there is a definite squeezing going on.” This has harmed producers of moderately priced goods, who haven’t really benefited from the boom. On the other hand, high-end retailers and their suppliers have increased their market share.

“It’s been a very unusual situation, in part fueled by the stock market,” says New York analyst Jay Meltzer.

Again, this trend is borne out by luxury spending figures: 7.6% of all cars sold in 1988 were luxury autos; that proportion surged to 19.3% in 1997. (These numbers include sport utility vehicles and vans, which constitute an increasingly large part of the luxury automobile market.) High-end jewelry sales are also up. Tiffany has posted double-digit same-store sales growth for the past four years, registering 12% gains in both 1994 and 1995 and 11% gains in both 1996 and 1997. Neiman Marcus has also seen its precious jewelry business do “phenomenally well, with sales growth in the double digits,” says Peter Farwell, NM vice president of corporate relations.

Privately held Van Cleef & Arpels is also enjoying strong gains, but wouldn’t release sales figures. Henri Barguirdjian says customers’ attitudes have changed a lot since the ’80s.

“We sell more jewelry than we did in those days. But people are looking for smaller, less ostentatious pieces that they can wear during the day, or that women can buy for themselves without having to wait for an anniversary or a big event.” He notes that while price points have shifted down, the drop has been offset by a greater volume of sales. Before the recession in the early 1990s, the typical sale at Van Cleef’s Fifth Avenue store was in the low six figures. Today, it is just below $50,000.

Prospects are bright for the upper tier of the jewelry industry, according to George Rosembaum. He believes that jewelry and other luxury goods are resistant to recessions and lesser market downturns. In his view, the only events that truly hurt expensive jewelry sales were the French Revolution and the Russian Revolution – in other words, the overthrow of an aristocracy.

“The very wealthy have a problem of enjoying their wealth. Once you have all the houses, cars, yachts and material things you need, then you have to move beyond – to things for which there is really no upper limit of accumulation, such as jewelry and art.

“The issue then becomes not what are the external economic conditions, but to what extent are tastes, styles and popularities changing among the rich. They have the freedom and autonomy to pursue whatever form of luxury spending they want. The real risk is that the desire for what you sell among the rich may change radically from one period to the next, simply because they’re bored.”

Still, there’s a sense of market vertigo and a consensus among the luxury retailers interviewed that while they are recession resistant, they are not recession-proof. There’s a nagging worry the good times can’t continue indefinitely.

As Barguirdjian puts it, “The Western part of the country is doing particularly well for us. When you see such strong figures you begin to monitor them closely. God forbid something should happen. We’re doing particularly well as we speak, and even if a stock-market correction occurs, we’ll still be way above our projections.”

Lessons In Recession-Proofing

Is it possible to become recession-proof? Hard to say. Some of the business practices outlined here may be of help. They’re a compilation of suggestions from analysts, plus tips from jewelers who have weathered earlier economic downturns:

• Establish your store as the source for occasion-related gifts. The demographics of the baby-boom generation reinforce this approach. Fiftieth birthdays, 25th-wedding anniversaries, and their kids’ graduations and weddings are coming hard and fast upon them.

• Maintain low inventories so that you don’t get burned by a rapid, unexpected drop in spending. In 1990 and 1991 many retailers misread future sales, compounding the damage inflicted by the recession.

• Emphasize enduring quality and value, not flashiness. Today’s affluent prefer branded goods representing these attributes. They’re also drawn to high levels of craftsmanship and design that make a statement of individuality.

• Consider enlarging your target market from the wealthy to include the high end of the middle class. This allows a business to retain its core customers, while building a greater volume of business at a lower price point. This can serve as a buffer in an economic downturn, when those same affluent customers may need to trade down a few notches in price instead of ringing up those spectacular purchases. There’s a risk of eroding an image of exclusivity and luxury, but stores like Asprey, Cartier and Tiffany have proved that, done well, it won’t tarnish your prestige.

• Are you sure you know your customer? Perhaps some of your target customers are too intimidated to shop at your store. That’s what Tiffany learned from market research conducted in the early ’90s. The Tiffany product offering didn’t change as a result, but the company’s ads now publicize its wide range of prices – for example, engagement rings from $850 to $850,000.

• Make your store or brand less intimidating. Also as a result of its market research, Tiffany designed more welcoming storefronts, beefed up its sales training, and implemented several educational initiatives – positioning the store as a trusted, non-threatening resource for high-quality jewelry and gifts. Cartier also worked to reduce the intimidation surrounding its brand and to make Cartier jewelry more accessible; the company expanded to 23 stores and to 250 authorized jewelers and department and specialty stores throughout the U.S.

• Manage for the long term. Don’t get spoiled, watch what you’re doing, direct your inventory to what the affluent are likely to buy and make shopping a pleasurable experience.