The Art of Selling Luxury in a Slowdown

Whenever times get financially tough, one of the first things experts advise is to cut out the $4 coffee. Nowadays, it's a double-whammy when you consider the gas you'll burn to get your $4 latte.

For consumers, that's sound advice, but what if you're the shop selling $4 coffee? What can a business owner who sells a non-necessity luxury good or service do when consumers have a gorilla grip on their every dollar.

Just last month, Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks) reported a 28% drop in second-quarter profit. Not sitting idle, Starbacks CEO Howard Schultz has said his company will launch three new drinks this summer. They're not the only ones revamping their menu, McDonald's (MCD Quote - Cramer on MCD - Stock Picks) has just added two new chicken items to its menu while Taco Bell, Subway and others have started boosting their value menus.

The Bureau of Economic Analysis shows consumer spending since November 2007 has dropped 0.2% for food, 0.4% for clothing and shoes, 0.6% for furniture, and 3.9% for jewelry and watches.

If your business is a luxury brand that sells items costing more than a gourmet coffee or crispy chicken sandwich, Milton Pedraza, CEO of New York-based Luxury Institute, has a few words of advice.

Don't Discount

First, avoid discounting. "It's a short-term trick that erodes your luxury brand for the long term," says Pedraza. Instead, he recommends business owners with luxury goods and services focus on one-of-a-kind, custom-made and/or made-to-order sales. Pedraza also says businesses should push limited-edition items. By doing this, the purchaser's decision must take time into consideration -- the consumer can't wait until the economy turns around, it forces them to act now.

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