New York: The deepening upheaval on Wall Street has rippled throughout New York’s business community, hurting everyone from luxury goods stores to charities to Manhattan restaurants, store owners and experts say.
With New York already feeling the effects of a weak US economy, the fall of bank Lehman Brothers, the sale of its rival Merrill Lynch & Co Inc and the struggles of insurer American International Group, all headquartered in Manhattan, has only added to concerns as Wall Street lays off well-paid bankers and the wealthy rein in their spending.
“These people will probably have to start curbing on some of the more lavish expenses,” said Matthew Miller, editor of Forbes magazine’s list of the richest Americans. “A $20 martini might need to turn into a $15 martini - it’s all relative.”
“There’s probably a lot of millionaires who can’t buy their girlfriends Prada bags this Christmas,” he quipped.
The biggest financial industry shake-up since the Great Depression will likely worsen an already tough situation, the city’s restaurant owners and retailers say.
Wall Street’s total compensation is about 35% of all wages and salaries paid in New York. Each job in the financial sector creates from one to as many as four service jobs, at companies ranging from shops to law firms, economists say.
“There has been a definite downturn in the economy and a restaurant purchase is a discretionary purchase. People don’t have to eat in restaurants,” said Chuck Hunt, executive vice president of the New York State Restaurant Association.
“The only thing we’ve got going for us in terms of customers are the Europeans that come in with their euros that are worth a lot more than our dollar at this point,” he said.
Sari Brown, chief executive of Internet retailer and boutique store LuxCouture, which sells items priced up to $5,000, said people trying to stay in fashion are definitely shopping more responsibly.
“People want to shop but even the wealthy people, they’re buying differently,” she said, speaking a few yards from Lehman’s midtown building. “Shopping is like a disease and they want to keep doing it, so they shop differently.”
Fewer chartered jets
New York’s millionaires may also be choosing more humble means of transportation. Ricky Sitomer, chief executive of Blue Star Jets, which arranges luxury chartered air travel, said his clients are changing the way they spend.
“People who are wealthy are still wealthy. They’re being more prudent with their money, making wiser decisions,” he said. “Not knowing what the future is, especially on Wall Street right now, people are looking for less-expensive alternatives to fly private.”
Milton Pedraza, the head of the Luxury Institute, an organization researching high-net worth consumers, said the wealthy were looking for alternative ways to maintain their lifestyles such as renting instead of owning assets.
Charities are also suffering from Wall Street’s woes.
“This is the worst fundraising environment I have worked in in my 25-plus year career in fundraising for nonprofit organizations,” said Jeff Towers of the American Red Cross.
He said the effects of hurricanes Gustav and Ike alone could reach $100 million and to date the charity has raised only $10 million.
In 2004, US corporations donated an average of 1.5% of their pretax profits to charity, but that portion has since declined to 0.7 percent, said Mark Shamley of the Association of Corporate Contribution Professionals.
“Our signals tell us that corporate giving as a whole is expected to remain flat or slightly decrease in the coming fiscal cycle,” he said.