Gold was raining from above for luxury brands in the good old days of 2007.
Last December, the designer Marc Jacobs held his annual holiday party for 800 guests, including revelers from Vogue, W, and Harper’s Bazaar, in the Rainbow Room at Rockefeller Center. With the theme of Arabian Nights, Mr. Jacobs had arranged for tableaux vivants, contortionists, five open bars, bare-chested women bedecked in gold necklaces, bare-chested men balancing candelabras on their heads and, at one point, a shower of gold glitter poured over the guests.
Mr. Jacobs has held the party for each of the last 18 years, but on Nov. 4, a short e-mail message was sent out by his business partner, Robert Duffy: “Due to the financial climate, I had to make the decision to cancel the 2008 holiday party.”
After getting through most of this year unscathed, luxury brands are suffering. Rich consumers who were relatively insulated from the economic downturn continued spending, but that has changed in the last few months. While luxury spending began to fall slightly from June, in October alone, it dropped 20.1 percent, according toMasterCard SpendingPulse, which estimates consumer spending in the retail and service sectors.
That drop-off means more bad news for magazines and newspapers in the United States that had grown increasingly dependent on luxury advertising.
Ad pages at the top luxury magazines fell 22 percent year over year for the December issues, according to Media Industry Newsletter. Vogue, for example, dropped from 284 pages last December, to 221 pages this December, while Food & Wine went from 160 pages to 126, according to the newsletter.
That has meant cutbacks at publishers. In October, Condé Nast announced it would reduce Men’s Vogue from 10 issues a year to two, reduce the number of issues of Condé Nast Portfolio and cut magazine budgets by 5 percent. Niche Media, which publishes Gotham and Hamptons, laid off some employees and closed a shelter magazine. American Express Publishing, which owns Departures, Travel & Leisure and Food & Wine, is laying off 4 percent of its staff.
“It’s definitely an environment that most have never seen,” said Ed Ventimiglia, the publisher of Departures. “Everyone is very concerned and somewhat confused as to what they should do.”
High-end advertising was one of the few strong advertising categories earlier in the year. Luxury ad spending in categories measured by Nielsen Monitor-Plus actually rose 6.7 percent through August of this year over last year, even as almost all other areas slashed their spending.
Publishers did not miss that trend. In September, Dow Jones & Company introduced WSJ., a glossy magazine, to attract luxury advertisers, and The Washington Post introduced FW, a fashion magazine. The New York Times Company has said its style magazines are big revenue sources for the company, and magazine publishers like Hearst, Condé Nast and Niche Media have also bet that high-end consumption and advertisements would continue.
For now, publishers are trying to persuade brands to maintain their ad commitments. More than half of affluent consumers have cut their spending on luxury products compared with a year ago, according to a study by Unity Marketing, a market-research firm. Those consumers’ confidence in the economy is the lowest it has been in five years.
“The stereotype in our sector is the high-end luxury brands are Teflon to a recession, which, of course, is nonsense,” said Alexander Duckworth, the founder of Point One Percent, a New York City company that advises luxury brands on marketing. “Much more so than in a traditional recession, this has really hit quite hard at the top, and quite quickly at the top.”
“We’re just seeing the very beginning of this,” Mr. Duckworth said.
Ronald Jackson, the chief executive of Tradema of America, which markets and distributes Girard-Perregaux watches in the United States, said he was reducing his advertising budget in the United States by about 20 percent for the first quarter.
“We have retailers that are saying, ‘You know what? We have this on order, but we need you to not ship it until things get better,’ ” Mr. Jackson said. “We have to react in some way.”
Graff Diamonds, the London-based retailer, is also cutting its budget. “We’re definitely not taking on any new advertising, and we’re cutting back on all our current advertising,” a Graff spokeswoman said. She declined to specify a figure, but said the cuts were higher in the United States than in Britain.
Brioni, the Italian fashion line, will cut its advertising by 10 to 15 percent in United States publications, said Antonella De Simone, the co-chief executive.
Other high-end projects, and the advertising that would accompany them, are being delayed or canceled. General Motors is postponing the introduction of the Buick LaCrosse until January, Ford is holding off redesigning its Volvo S60 sedan and XC90 sports-utility vehicle, and Chrysler has stopped production on its Aspen hybrid sports-utility vehicle. Orient-Express Hotels canceled new buildings in Miami; Cartagena, Colombia; Zambia; and Puglia, Italy. Donald Trump is postponing a $300 million development in Philadelphia, and the Ritz-Carlton Hotel Company has halted projects in Florida, Vancouver and California.
Facing a steeper decline, publishers are feeling very vulnerable.
“What the first salvo seems to be, going into 2009, is luxury advertisers — who will go unnamed — are trying to take advantage of the negative news in the market in order to secure a more favorable rate,” said Jim Taylor, the publisher of Town & Country, a Hearst magazine.
“It would be a reasonable argument if our costs weren’t going up dramatically, but we’re affected by the same things they’re affected by,” he said. “Paper’s way up, postal’s way up.”
Mr. Taylor said he was expecting smaller brands, in particular, to reduce the number of ads they would run in his magazine.
At Condé Nast Traveler, advertisers are being slow to commit, and financial services and real estate ads are plummeting, the publisher, Lisa Hughes, said.
Michael Rooney, the chief revenue officer of Dow Jones & Company, the News Corporation division that publishes the Wall Street Journal and WSJ., said luxury advertising in the newspaper was about flat. There were 51 advertisers in the premiere issue of WSJ., he said, and 52 so far in the second issue, which comes out in December.
Luxury advertising in The New York Times has been “very stable” this year, said Denise Warren, senior vice president and chief advertising officer at The New York Times Media Group. She said the holiday issue of the fashion publication T Magazine was up by one page of advertising compared with last year. Still, she said, “there is absolutely nervousness in the marketplace.”
And Mr. Ventimiglia of Departures said the January issue was down in ad pages.
“A page here and a page there add up,” Mr. Ventimiglia said, “even though many lost pages are a result of delayed budgets, and we’re taking a hit.”
Though luxury brands are reducing advertising, many continue — quietly — to spend on client dinners and launch parties, which they view as directly affecting sales. But the events may not erase economic concerns.
In October, the Swiss watch brand Vacheron Constantin hosted a party to promote a new line of watches, some costing as much as $60,000. Inside the event, it seemed like precrisis times: waiters passed trays of lobster wrapped in zucchini and beef en croûte, and filled glasses with Moët & Chandon champagne.
“As of today I think it would be wrong to stop everything because of the crisis,” said Julien Tornare, the president of Vacheron Constantin North America, in an interview. “Of course we will adjust if we have to in the future, but right now we don’t want to react.”
Two men in suits, sipping drinks, walked past one of the watches, mounted on a pedestal like a museum piece.
“You see the watch?” one asked.
“Nice little watch,” the other replied.
“Yeah, it is,” the first one said.
But they kept walking.
This article has been revised to reflect the following correction:
Correction: November 26, 2008
Because of an editing error, an article on Monday about advertising cutbacks by luxury brands misidentified the site of an Orient-Express Hotels project that has been canceled. It is Cartagena, Colombia, not Cartagena, Spain.