What Does the "It Bag" Have to Do with the Economic Crisis? More Than You Think

"Contentment is natural wealth. Luxury is artificial poverty." The words seem extremely compelling at present, but they were written centuries ago by Socrates. I just came across them in a book called Deluxe: How Luxury Lost Its Luster.

Deluxe was published last year, but it is an interesting book to be reading in this time of tumbling markets, as they will surely bring the curtain down on an era of excess. The book's focus is high-end brands but in many ways it is a story about human nature and history's cycles of boom and bust. The author, Dana Thomas, who covers fashion for Newsweek chronicles legendary companies that were founded as family enterprises and built on principles of high quality and service, like Louis Vuitton and Christian Dior. They catered to an elite clientele until the 1990s, when the forces of globalization and capitalization changed the game. Retail wizards like Bernard Arnault realized that huge profits could be made by leveraging historic brands to sell status to the masses. Slick advertising campaigns, mass production and shiny boutiques on every fashionable corner conspired to convince the world's upwardly mobile that sought-after accessories were within their grasp. All they needed to join celebrities and socialites on the global runway was good taste and a credit card.

Is the housing boom that kick-started the economic mess that we are in now so different in its evolution? After all, the mortgage disaster has its roots in Fannie and Freddie Mac providing home ownership to all Americans, regardless of their credit profile. Banks offering low-rate mortgages popped up on every corner and now we have the subprime mess. The Detroit debacle, too, can be traced back to unsustainable growth that was spurred on by 0 percent financing, no-money-down marketing and the idea that everybody in this country is entitled to two cars in his driveway, preferably one an SUV and the other a BMW. The notions of hard work and disciplined savings were dismissed as quaint ideas of a bygone time.

Of course, there are parallels to the excesses on Wall Street as well. Anyone with an MBA could open up a hedge fund and money from institutional pension funds and endowments came pouring in based on the promise of double-digit returns. Risk. What risk? These vehicles that were once the province of only the most sophisticated investors would welcome everyone. Wasn't this just financial opportunity for the masses? After all, it wasn't that long ago that Lehman Brothers and Bear Stearns were private firms where the partners counseled clients from their clubs and split annual earnings over cigars. Like the houses of Vuitton and Dior in the old days, they had their ups-and-downs in economic cycles but served a niche, not everyman. Nor were they meant to improve earnings quarterly. They were conservative about managing portfolios just as Hubert Givenchy wouldn't push a silhouette on one of his loyal customers that didn¹t suit her. Personal relationships and accountability mattered when companies were small and word-of-mouth carried weight.

In more restrained times, as recently as 1977, Vuitton only had two shops in Paris and revenues of $12 million. By 2005, there were more than 300 Vuitton shops (twelve in mainland China alone) and the LVMH conglomerate posted 14 billion euros in revenue. Similarly, when Lehman Brothers went public in 1994 it had only $75 million in revenues compared with $32 billion in 2005. In the same way that the lure of luxury bags has spread to the masses, in the past decades, the right to be a day trader has been seized by any one with an internet connection.

But, not surprisingly, anything taken to excess does lose its luster. To fire up their profits, the ambitious CEOs of luxury good companies created the cult of the It handbag. According to Deluxe, in 2004 the average American woman purchased more than four new handbags a year. At that rate, don¹t they become disposable as opposed to treasured? The American dream of one day owning a house has resulted in millions of people being bankrupted by their mortgage payments, and cul-de-sacs across California are littered with For Sale signs. In 1980 only 13 percent of Americans were invested in the stock market. Thanks to the emergence of $5 online trades and 24-hour cable finance shows, by 1999 almost fifty percent of Americans owned stocks directly or in mutual funds. Of course, as Americans have watched the prices of their too-easily financed houses sink and the value of their 401Ks plummet, the ugly side of binging has been revealed. Some of the same middle-class Americans who cannot pay their mortgages now may realize that owning last year's "It bag" didn't improve their social standing and has contributed to the mess they are in. These golden opportunities in fashion, real estate and finance now appear to be too good to be true and consumers‹and tax payers‹ are left holding expensive, empty bags.

The credit bust and resulting consumer cut-backs will undoubtedly deflate the luxury bubble and the culture of conspicuous consumption that it spawned. Another quote attributed to Socrates on an era of excess: "The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers." The only difference that he might add today is that the teenagers carry Prada purses.

A friend remarking on how all of this may spark a return to the kinds of values that we grew up with in the 1970s, pointed out that, "Back then, you got a bicycle or a new coat because it was your birthday, not just because you grew two inches." It's true and back then, my mother had one handbag, a Gucci one that was so well made that I still have it today.

Melissa Biggs Bradley is the founder of Indagare.com, a member-based web site, newsletter, community and booking and advisory service for sophisticated travelers. She was the founding editor of Town & Country Travel magazine and is the former features and travel editor of Town & Country. Two of her company's core principles are that travel is not just where you go but how your journeys shape you and that authentic experiences are endangered but that we can preserve them by traveling intelligently and responsibly.

Comments

[carrieanna]

I don't care what people spend their money on as long as they don't complain about little they have left after their purchases or how I spend mine. I bristled when my co-workers would make condescending remarks about how often and where I travelled. I always pointed out to them that I scrimped on certain things so that I could afford to do what I wanted. I drove a 10 year old gas-efficient car, eschewed cable tv, and lived in a modest dwelling. That is the way I afforded trips to Japan, Hong Kong, London, Paris, Spain, etc. I always felt that the experiences I had travelling far outweighed any feelings that material possession could buy.

I did treat myself to a Carolina Herrera handbag last year but it was within my budget and I plan on keeping it for the rest of my life.

[Melissabb]

I agree with you that spending money on seeing the world is always a worthy investment. I have long treasured experiences over objects and would much rather give my kids memorable moments than more things. With the burst of the housing and credit bubbles that floated many people into a heady zone of spending, I think everyone is going to come down to earth. Frankly, I don’t think that’s a bad thing because to paraphrase Socrates it’s the simple, authentic moments that add true value to one’s life, not the dazzling stuff.

I hate that there will be suffering but if it means a return to more meaningful values and a rejection of flash-and-cash flaunting that will be better for all of us. Fundamentally, what has always been greatest about travel—that “it can enlarge the soul and even change the world”—will be even more prized in the years ahead, I hope.

[AZBunny]

On the other hand here is my story.
I worked for a large tech company and recieved stock options and had a 401K that I contributed large amounts to. I moved to a different state and sold half of my stock options for the down payment on my home which we qualified for considering only 18% of my husband's wages (one income only) . The other half of my stock options I kept for a rainy day. We drove around a 94 Ford Ranger and a 98 Ford Contour. During the tech stock bust I lost all the money in my 401K and my stock options became worthless, they still are. My husband lost $150,000 from his 401K and that amount has not be recouped and now here we go again!
Lesson: live high on the hog don't save a penny, don't put any money in your 401K because you'll deprive yourself for NOTHING!!!!

[ORSunshine]

I enjoyed this -- you made some pretty direct connections to the materialism and "got to have it" culture that has gotten us in this mess. At lunch yesterday with a girlfriend we were discussing the fact that our current society doesn't really value "savings," instead we say, "Want it. Get it."

I only have one handbag. It's a hand-made custom-ordered one that my mother-in-law purchased for me from her artisan friend. It suits me fine and is pretty good for all occasions. I have two cheap Chinese made beaded clutch handbags that I use for going out when on business trips or to the "theater." But I guess I'm way out of the normal 4-a-year-a­verage-wom­an category..­. which means that there are women out there who purchase far more than 4!