LUXURY'S GAUDY TIMES

By John Greenwald

IF AMERICAN CONSUMERS ARE SO WORried about their jobs and armpit-deep in debt, why do Mont Blanc's five U.S. stores keep running out of their 888 Prince Regent pens, at $5,900 a pop? And why does Chanel have a waiting list for its $2,999 double-breasted tweed dresses for spring, which have yet to reach the stores?

Well, if you have to ask, it's because the rich are back to being different. Following a brief, unsatisfying fling with modesty in the early 1990s, they've renewed their lust for luxe and are making upscale stores the brightest spot on the dowdy U.S. retail scene.

Paris designer Marie-Claude Lalique has seen this frenzy close up. When Lalique signed crystal ware and bottles of perfume at Manhattan's tony Bergdorf Goodman store last week, shoppers snapped up nearly 100 items, including $2,750 perfumes and a $4,700 vase. "In two hours we did the kind of business we normally do in six months," said an awed spokeswoman for Lalique's company.

Profits at Tiffany jumped 34%, to a record $39 million in 1995, even as mass merchants such as Caldor and Jamesway were trooping into bankruptcy court and closing hundreds of stores. Gucci, the once-moribund designer and retailer of fashion apparel, has come roaring back under Bahrain-based Investcorp, which said just last week that it plans to sell its remaining 51% stake in Gucci to the public for some $1.1 billion this year. Investcorp will also sell shares in its resurgent Saks Fifth Avenue chain this year, six years after buying the once-flagging operation.

The success of such stores reflects a widening split in the U.S. between families with moderate and middle incomes and those earning $100,000 or more. Says Maureen McGrath, who follows retailing for Smith Barney: "Affluent consumers are becoming more affluent while the less affluent are becoming less so."

This gap shows up dramatically on the selling floor. Isaac Lagnado, publisher of Tactical Retail Monitor, an industry newsletter, estimates that sales of designer items such as $200 Hermes scarves and $1,745 Chanel handbags grew a whopping 18% last year, to $30 billion, while sales of general merchandise--everything from toys to towels to T shirts--rose only 4.5%, to $575 billion. "The low end is tapped out," says Merrill Lynch analyst Peter Caruso. Indeed, credit-card delinquencies are at a 10-year high. And feeble sales growth has forced discounters such as Wal-Mart, K Mart and Toys R Us to squeeze pricing until the bottom line hurts; underperforming stores are being forced shut.

So while Payless ShoeSource closes or relocates some 10% of its 4,500 discount stores, Gucci can't keep enough of its $295 high-heel pumps in stock. Nor has business slowed at Geary's Beverly Hills in that California city, where tableware goes for $1,000 a setting. Geary's wrapped up its best fall/Christmas season ever last year. Crows president Bruce Meyer: "Our customers want something to separate them from the crowd."

All this marks a sea change from the sackcloth style of recent years. "The beginning of the '90s was a reaction against the glitz and conspicuous consumption of the '80s," says Valerie Steele, a professor of fashion history at the Fashion Institute of Technology in New York City. "And you saw that in the 'Gapification' of America. Now there is a return to the status of fashion, luxury and quality." And how. Just ask Chanel, where women have reserved the company's entire new line of $750 khaki pants even though the Gap offers a comparable look for about $38 a pair.

The revitalization has been paying dividends for posh brands and retailers. "We have been absolutely driven by luxury products in the past 18 months," says Rose-Marie Bravo, president of Saks Fifth Avenue. "Consumers want you to know they have it [upscale style], but they don't want to shout." As an example of this quieter elegance, Bravo points to the sleek and somber lines of Jil Sander, where a suit averages about $3,000.

That's what Chanel president Arie L. Kopelman calls investment dressing--paying big bucks for attire that can wear well and remain a fashion statement for years to come. "It's not just a phrase," Kopelman says of his coinage. "It [means] pride in ownership." He's not lacking for "investors": sales rose 20% at Chanel last year.

In the midst of anxious times, some consumers have decided that "dressing well is the best revenge," using high fashion to show they've still got their jobs and station in life. It's called "let your Ferragamos do the talking," says Isaac Lagnado. And many people are doing just that. "Business is booming across the board," says Massimo Ferragamo, president of Salvatore Ferragamo. "Sales are running 55% ahead of last year."

The top-end sellers don't see anything out there that could take the icing off their cake, and they continue to expand. At the Ferragamo men's and women's shop in Manhattan's Trump Tower, demand for such items as $825 zip-top bags and $2,260 leather jackets has grown so brisk that customers may purchase no more than 10 in any one category such as coats or pairs of shoes. Perhaps they'll just have to think of it as sharing the wealth.

--Reported by Stacy Perman/New York and Jacqueline Savaiano/Los Angeles

With reporting by STACY PERMAN/NEW YORK AND JACQUELINE SAVAIANO/LOS ANGELES