The Death of Mass Luxury

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com/research/stocks/snapshot/snapshot.asp?capId=135794'>Boston Consulting Group and author of Trading Up: The New American Luxury. "She hears that banks have tightened their lending and listens on CNBC that credit markets are intense, so she's going to be careful with her money and look for value," Silverstein says.

Coach saw its eight-year growth streak come to a screeching halt during the holiday season. It recently took the highly unusual step of issuing discount coupons to drum up sales. CEO Lew Frankfort says that the 20% annual growth in handbags since the second half of 2003 has ended. He's dialed down growth expectations accordingly. "Our assumptions going forward are built upon 5% growth," says Frankfort. Sales of Nordstrom's more affordable brands, "Point of View" and "Narrative," faltered, and prices had to be marked down. At Nordstrom stores that had been open at least a year, sales fell 4% in December as compared with the same period a year earlier, after an 8.7% increase in November.

A tougher question faces luxury companies, however: Will the trade-up customers come back? The answer isn't clear. Consumers are in a state of flux, and are hard to read. Trudy Sullivan, CEO of upscale women's apparel chain Talbots (TLB), said her core affluent customer is demanding more classic clothes and "wants us to be serious." Yet the slightly younger, less affluent customer who had been dropping in once in a while is in a "show-me stage," and "wants us to be somebody else." Sullivan's solution? She has posted winning Talbots styles from the past 60 years in a room at the company's Hingham (Mass.) headquarters. She's hoping those classic campaigns will give her inspiration in a time of great uncertainty.

Gogoi is a contributing writer for BusinessWeek.com.