Britain: The Economic Fallout

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Case in point: A broker at Canary Wharf real estate agency Alex Neil tells a story about one of the firm's clients, who had been trying to sell a two-bedroom apartment he bought as an investment prior to losing his job with Lehman. Now, the client has not only been forced to take the property off the market but has moved into it to save on rent.

Dog days

Lucy Kennedy, the owner of Happy Dogs in London's tony Kensington neighborhood, also has felt the "Lehman effect." In the days leading up to the brokerage's collapse, a handful of her customers e-mailed and phoned to say they no longer needed Kennedy's dog-walking and boarding services. Then, a day after the bankruptcy, she showed up for a dog-walking appointment at the home of a Lehman employee, only to discover a maid packing up the family's belongings for a move back to the U.S. With Kennedy's business halved since the beginning of January, what's going on in the financial markets, she says, "affects everyone."

At Canary Wharf's upscale Reebok Sports Club, memberships are down from last year. With its business heavily dependent on the area's major investment banks, says the club's managing director, Ian Mahoney, "We're monitoring the situation pretty closely." After Lehman failed, a steady stream of headhunters started showing up to hold interviews with laid-off workers in the gym's coffee shop. "We joked that things might be going badly at the gym, but at least coffee sales have picked up," Mahoney says.

Of course, among the country's ranks of über-wealthy, the concept of scaling back is relative. Dallas Dacre Lacy owns an eponymous domestic recruitment agency in Fulham, a London neighborhood that's home to many City hotshots and their families. Lacy says demand for everything from housekeepers to butlers is holding steady—so far. The main difference she has seen recently is that whereas in the past wealthy clients tended to employ several staff, now they are hiring just one or two that act as "good all-rounders." So-called house managers, who can earn up to $200,000 for managing a client's home and staff, are also now sometimes taking on the duties of butler or chef.

Christine Ford, owner of the London luxury travel agency Preference Travel Ltd., says she, too, is noticing a growing trend among wealthier clients to economize. Ford says her business has dropped by half since April, but customers at the top end of the market are still traveling. One of her clients, who works in finance, often booked high-end holidays at short notice, without even thinking about the price. Now he is taking his time before booking to search out deals. The credit crunch won't stop these people from taking holidays, Ford says, but now they are putting greater emphasis on getting bang for their buck.

One man's poison...

Other businesses see the downturn as an opportunity. Upscale supermarket chain Waitrose plans to introduce a range of cheaper cuts of meat at its stores next month, including trotters and bath chaps (for the uninitiated, that's pig's feet and lower pig's cheeks, respectively) which sell for as little as $4 a kilogram ($1.82 a pound), vs. $12 per kilogram ($5.45 a pound) for boneless pork shoulder.

Publisher Hodder & Stoughton is reissuing legendary British chef Delia Smith's 1976 cookbook, Frugal Food, to appeal to increasingly thrift-conscious British consumers. And as the super-rich cut back on buying fancy automobiles, business is booming for Michael Breen, owner of a membership club for so-called supercars.

Breen's P1 International, which has offices in Manchester and London, offers members all the benefits of owning top-end luxury cars without any of the hassle—a sort of time share for fancy cars. Customers pay a one-time joining fee of $4,600 plus an annual membership fee of up to $27,000. In exchange, they can use cars ranging from a BMW M3 (which sells for around $100,000 new) to a Mercedes SLR McLaren (which costs $612,000). "Ironically, the turmoil in the markets is actually working in our favor," Breen says. (It's also boosting short-term rentals of all manner of other luxury goods, from designer handbags and evening gowns to Apple (AAPL) iPhones, available through providers such as Erento (BusinessWeek.com, 8/22/08) and Zilok.)

Breen says P1 is picking up a growing number of customers who have either canceled orders with dealers or decided to sell their cars to avoid the expense of keeping them. "With the cost of servicing, insuring, and maintaining luxury cars running as much as $100,000 a year, our members see P1 as a smarter way to access these cars," he says. "We've had lots of people, including a number of bankers, asking us to buy their cars because they can no longer afford to spend all the money needed to keep them up." If Britain's economy continues to sink, more customers may be on the way.

With reporting by Mark Scott in London

Capell is a senior writer in BusinessWeek's London bureau .