Luxury After Lehman Brothers

NEW YORK (TheStreet) -- Luxury, since the collapse of Lehman Brothers, hasn't looked pretty.

In fact, the fall of the sector has been unprecedented. Not once during the major downturns of the past three generations -- not in 1974, 1989, 1992 or 2001 -- have wealthy consumers responded to an economic downturn by so radically smothering their spending habits. But today, the psyche of these consumers has undeniably changed.

"Frugality is the new black," Stifel Nicolaus analyst Richard Jaffe says. And this trend could last a decade. Because while Federal Reserve Chairman Ben Bernanke declared earlier this week that the recession is "likely" over, that's hardly the case for the luxury sector.

According to a recent survey conducted by The Luxury Institute, 77% of wealthy shoppers believe luxury is less important in today's economy, and only 40% say it's a good investment.

What's Next for Luxury

For this reason, Milton Pedraza, CEO of New York-based research firm The Luxury Institute, predicts the sector will not recover in the next 12 to 24 months. "The stock market has only made back half of what it lost, we need to do better than that before we see a true recovery," he says.

And even once a full recovery is realized, Pedraza expects spending levels to be nowhere near what they were several years ago for at least the next five to 10 years.

"Unless there is a new economic boom ... I do not see a true return to the luxury spending we saw several years ago," Pedraza says. "Luxury is cyclical; it doesn't grow any faster than the economy -- and there is nothing on the horizon to convince people to spend above their means."

Indeed, the hedge fund manager who once had $100 million in assets most likely now has $60 million, while the dentist who made $100,000 quite possibly makes $75,000 -- and his 401(k) has been slashed, Jaffe says. There is no reason to cry for either; they can both still afford a $200 pair of jeans. But it seems they are choosing not to.