When hip hop mogul P Diddy announced he was cutting back on his trademark bling so as to be 'sensitive' to the economic plight of lesser mortals, it was seen by some as the death knell for the era of conspicuous consumption. The party appears to be over for the generation brought up with the mantra 'because you're worth it'. Many who have followed this creed have financed their desire to live like the rich and famous via credit cards and loans. As credit dries up and people seek to manage their debts, some luxury brands, which were once seen as recession-proof, are now reporting dismal results.
Martin Runnacles, a former marketing director of Jaguar and BMW, claims that luxury brands are in uncharted territory. 'The tradition has been that luxury brands have held up well in downturns,' he says. 'The difference in this recession is that the hyper-rich have been hit.' Moreover, even if this group retains its spending power, many within it feel disinclined to spend because they feel it immodest to over-indulge when so many others are financially struggling.
That said, spending on luxuries has not stopped altogether. Indeed, for those with cash to spare, the recession is proving a great time to spend on upmarket goods. Simon Staples, marketing director of wine specialist Berry Bros & Rudd, says there has been a flurry of activity in the fine wine market as the price of cases from the top 30 chateaux fell by up to 40% between September and November last year. 'In the past two months, we have seen sizeable investment from those who view fine wine as a tangible asset,' he adds. Similarly, those with cash to spare are enjoying a buyers' market in the fine art, property and vintage fashion markets.
However, the broader market is more subdued. As middle-income consumers desert luxury brands they have been so keenly buying during the good times, so their profits have started to plummet.
Such was the growth in luxury goods over the past decade that the traditional sales model of a luxury brand, based on real affluence and genuine exclusivity, became outdated. Formerly exclusive luxury names, such as Jimmy Choo and Burberry, became mainstream, consequently making them far more vulnerable to the effects of a downturn.
Jonathan Davies, managing director of packaging design agency Holmes & Marchant, points out that the notion of 'mass-market luxury' is an oxymoron. 'Luxury brands have been seduced into adopting a mass-market brand model,' he says. 'If only a few people have cash to spare, they will be looking for genuine luxury, not something everyone can own.'
According to Davies, the biggest challenge for genuine luxury brands comes in the way that many ordinary mass-market brands have been moulded into upgraded incarnations of their former selves. This makes brand differentiation exceedingly difficult. More so when many traditional luxury brands have been courting a wider, less-affluent audience than they were used to.
'It is the affordable luxury sector - especially perfumes, cars, travel and clothing - that will really feel recession,' says Rory Teeling, planning director at ad agency DCH. That said, consumers used to pampering themselves are unlikely to be willing to forego all their luxuries. This presents an opportunity for deftly positioned brands. 'Spending won't dry up altogether,' adds Teeling. 'For example, consumers might swap their two-week luxury Caribbean break for a luxury weekend in the UK. They might buy one piece of luxury clothing and then mix and match that with less costly items.'
Atelier, the luxury division of ad agency Leo Burnett, recently surveyed 5,713 luxury consumers in the UK and US. Its research reveals that the concept of luxury means different things to different people. However, of those surveyed, 65% cited time as the biggest luxury.
'Luxury has certainly become more democratised over the past decade as consumers have become more aspirational,' says Janet Carpenter, general manager at Atelier. According to the research, confidence is slipping away fastest from those aspirational consumers who drove such a significant part of the recent growth among luxury brands.
Simon Threadkell, creative director of retail design specialist Fitch, says the end of 'mass affluence' - people who earn their own money - could have a devastating effect on the luxury goods market. 'Over the past five years, luxury brands have appealed to a much broader  audience, to people who might splash out £800 on a Mulberry handbag only to sit and have lunch in McDonald's,' he says. 'The top end of the mass market is where I expect to see the most contraction. The "thinking middle class" has put the brakes on its spending.'
Indeed, the 'thinking spenders' might not be that short of cash at all, but rather displaying a wariness of being squeezed for extra outlay as they join the fad for thrift. For example, an investment bank might book its Christmas party under the guise of being a local cricket team.
According to Carpenter, luxury brands' attempts to steer clear of being seen as vulgar pre-dates the global downturn. This shift can be seen as far back as 2007 in a Louis Vuitton ad campaign that emphasised the brand's classy heritage by using gravitas-laden personalities such as Mikhail Gorbachev and Sean Connery.
'We are seeing a move toward "stealth wealth",' says Carpenter. 'Consumers want to have "status stories", as opposed to status symbols.' The move toward luxury 'experiences', such as far-flung holidays and Virgin's roll-out of Virgin Galactic, reflects this.
Juliet Warkentin, content director at fashion analyst WSGN, says a focus on brand heritage and product sustainability will dominate 2009. 'This trend could be termed the "baglash"; a movement against the zeitgeisty, de rigueur "It" bags and conspicuous consumption toward a more humble design approach to luxury that's all about understated perfection and unconscious simplicity,' she says.
Luxury brands that are associated with a discreet sense of style and are able to match this mood, such as leather brand Bottega Veneta and fashion label Margiela, look well placed to prosper.
There is no doubt that many of the Uber-rich have been relatively unaffected by the downturn. While no brand would claim that their clientele makes them recession-proof, there are many examples of top-quality luxury brands beating the downturn. For example, despite the economic uncertainty facing the motoring industry, Rolls-Royce reported a 20% increase in sales in 2008. According to its own figures, the luxury car manufac-turer sold 1,212 cars in 2008 compared with 1010 the previous year. Elsewhere, designer label Hermes, which produces the Birkin - considered the ultimate in 'status bags' - is also doing well.
Simon Bell, managing director of creative digital agency Pod1, which works with designer handbag brand Anya Hindmarch, says that upmarket brands producing quality products with enduring value will survive the slump. 'There may well even be a flight to quality,' he adds. 'Consumers will go for fewer, but better, goods. They won't necessarily be flaunted in the same way. Moreover, quality lasts, and that means value for money in a prolonged recession.'
This 'flight to quality' is a familiar pattern in times of economic turbulence. While many luxury brands will struggle to match their sales volumes to middle-income earners compared with years gone by, those who concentrate on selling fewer exclusive products may maintain their sales figures. In line with this, many luxury brands are reappraising their marketing strategies and refocusing on their core customers, ditching the scatter-gun approach of the past.
One anecdote doing the rounds of hard-pressed luxury department stores is that of an outlet struggling to sell an upmarket couture dress with a very high price on it. The lead buyer solved the dilemma by increasing the price to make it the most expensive piece in the collection; it subsequently sold for £20,000. Despite the downturn, there are still buyers seeking what they perceive to be the best, which in many minds equates to the highest-priced, products. Marketers need to be ruthless with their pricing to benefit from this.
As the recession continues to dominate the headlines and consumer confidence slips further, many marketers are focusing on the idea of austerity. We should not overlook, though, an unerring consumer desire to treat themselves. As Runnacles points out, austerity is not a lifestyle choice, but a forced necessity. 'People simply don't have any choice in cutting back,' he says. 'I simply don't believe we have seen the end of conspicuous consumption.'
Gerald Eastwood, managing director of marketing innovation agency I Wonder If, points to the example of Gucci. 'In the 80s and early 90s it lost its way when its product quality slipped and the company stretched the brand into too many mass-market extensions. Tom Ford did an excellent job at revitalising the brand. He made it sexy and relevant again, reviving its immense heritage.'
There is no doubt that luxury brands are in unfamiliar waters and the fierce discounting on the high street and online has placed unprecedented pressure on profit margins. Brands that have over-reached themselves and neglected their core market for more middle-income, aspirational consumers may struggle to cope as shoppers cut back.
As the joke that there is more value in their handbag collections than their share portfolio is bandied about among the well-to-do, it's a reminder that luxury brands with genuine value and exclusivity seem well set to ride out this storm.