It turns out the rich are not that different from you and me, at least when it comes to shopping in a recession. The wealthy are tightening their belts, just like middle-class folks (even if the belts may come from Hermés rather than JCPenney). It wasn’t so long ago that luxury consultants, brands and high-end department stores were confident they could ride out the storm, because the rich, unlike you and me, were impervious to economic chaos. But after Lehman Brothers crashed and burned last fall, even the wealthiest cut back on diamonds and caviar, as well as the evening dresses to go with the jewels and the crystal for the caviar. As this recession has unfolded, luxury shoppers are taking a pass on buying another $5,000 Armani gown or $3,000 Gucci handbag. Whether it’s because trust funds have evaporated amid the carnage in the stock market and real estate or to avoid being seen as conspicuous consumers at a time when the masses are lining up for unemployment checks, luxury shoppers have cut back dramatically. To avoid public scorn, many of those who can still afford those prices have been spotted on Manhattan streets discreetly hiding their purchases in anonymous brown-paper bags. “Who wants to be Marie Antoinette?” asks retailer marketer Len Stein.

Landlords feel the retailers’ pain—on their bottom lines. And they reckon that they can keep some stores alive by renegotiating leases. Owners of opulent spaces on Madison and Fifth Avenues have quietly begun slashing rents—by 25 percent or more, according to Eric Le Goff, senior director at Cushman & Wakefield Retail Services in New York City. New York usually leads pricing trends, which should spread to other major cities, such as Los Angeles, Chicago and parts of Florida. “Deals are being made,” says Le Goff.

Just last summer, Hermés for Men paid $1,500 a square foot for the pricey location at 62nd Street and Madison Ave. Equivalent spaces today are now going for less than half that—between $600 and $700 per square foot, according to Le Goff. Owners have had little choice, he says. More than 15 percent of prime Madison Avenue space sits empty.

“This is very intelligent on the part of landlords,” says New York retail broker Faith Hope Consolo. “Otherwise they would be overwhelmed with vacancies.”

The theory is that if landlords can ride out the rough patch, they will be in position to raise rents again when the luxury market turns. The one problem with that scenario is that some experts are predicting the flush days may not return at all. European labels, which once did big business in the U.S., are threatening to close shop and go home—for good, says Britt Beemer, CEO of Charleston, S.C.–based consumer research firm America’s Research Group. Beemer predicts that 40 percent of luxury stores could close in the next 18 months, based on consumer sentiment he’s seeing in the surveys his firm conducts. “This is the worst data I’ve seen in 30 years,” says Beemer. “We could see a retail wasteland.”

Beemer’s also not that enthusiastic about the rental reductions being passed on to luxury retailers. “That’s great news,” says Beemer. “But you still have to have shoppers to make it work. Where are the shoppers?”

Others are more optimistic, cautiously predicting the luxury category is here to stay. “There will always be demand,” says Mike Nevins, senior vice president of leasing at Santa Monica, Calif.–based Macerich, but most agree that luxury survivors will be the ones that focus on classic looks and high-quality products incorporating hand stitching and luxurious fabrics.

For a while, the weak dollar lured foreign tourists to New York and other big retail centers, shoring up the U.S. market as they rounded up armloads of jewelry and other riches. But this has come screeching to a halt as the dollar has strengthened in recent months and the recession has gone global, putting a crimp in international travel.

All these pressures are having a frightening impact on luxe retailers, including Fortunoff, which has sought bankruptcy protection, and Saks Fifth Avenue, which reported a 26 percent dive in comparable store sales in February and may be forced into bankruptcy.

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Beemer supports his depressing outlook with data compiled by his company. Only 0.5 percent of U.S. shoppers purchased jewelry in March, compared with 8.1 percent in March 2007. And only 4.5 percent of the population shopped at major retail stores in March, compared with 11.8 percent a year earlier, according to a Beemer study.

Same-store sales for the luxury sector have collapsed. During December, January and February luxury department stores posted declines of 19.2 percent, 17.7 percent and 17.4 percent compared with the same months last year, according to data compiled by ICSC. The comps have been negative every month going back to June 2008, but the declines have accelerated.

Beemer, for his part, blames not just the devastated economy for the sector’s woes, but also thinks that President Obama’s fiscal and tax policies will hurt the rich through higher tax rates. That, he says, will prolong the luxury meltdown.

So the luxury industry is left to ask, When will shoppers return? With revenue dropping amid the continuing global economic meltdown, some retailers have filed for bankruptcy or are considering it. Lambertson Truex, a Samsonite unit that sells handbags costing up to $4,250 and high-end clothier HartMarx have filed for Chapter 11 bankruptcy protection. Many experts believe Saks Inc. may be next.

Meanwhile, Milan-based Gianfranco Ferre, part of the IT Holding giant, is on the brink as well. Even French icon Chanel is taking “prudent measures” to prepare for a long recession by paring down on travel expenses, hiring temporary employees and cancelling a traveling tour based on its classic quilted bag, the cost of which could save some homes from foreclosure.

And now Tiffany & Co. says it’s shuttering its five-year-old Iridesse brand that operates 16 stores specializing in pearl jewelry. Iridesse was Tiffany’s attempt to cash in on the so-called aspirational market—the section of the luxury sector that depended on occasional big-ticket purchases from middle class shoppers. Aspirational luxury purchases collapsed early last year as the middle-class cut back on discretionary spending in advance of the wealthy.

“Companies in this category are scrambling,” says Greg Furman, chairman of the Luxury Marketing Council, a New York City–based organization of CEOs and marketing executives from major luxury goods and services companies.

In late March, Tiffany had even worse news as its net income declined 76 percent, mainly because of store closings and weak revenues. “Too many labels tried to join the club,” Furman says. “But it’s not open to everyone.”

It will be some time before the whole story is told. But, for now, expect more layoffs, store closings and failed brands. “There is just too much stuff,” says Le Goff. “It starts being confusing for consumers.” Even the top-tier designers will cut back, likely paring down the number of stores in secondary cities.

“There are plenty of discussions behind closed doors,” says Le Goff. Not surprisingly, however, the landlords aren’t willing to reveal how desperate they are by announcing renegotiations.

The No. 1 issue is marketing. “There is a major migration in dollars from print to the Internet,” says Furman. They aren’t spending on traditional mass advertising, either. They are targeting individual customers with tailored messages likely to appeal to them based on their shopping patterns and other demographics. The e-mails aren’t designed to promote online shopping as much as they are to bring customers back to the brick-and-mortar stores.

“Landlords are hunkering down and looking for ways to spend every last cent wisely,” especially, says Furman, when it comes to more communication between retailers and landlords. Once enemies, they are starting to work jointly so this apparently surprising disaster won’t happen again, and if it does, they will be prepared.

Consolo dubs this unfolding process “reconglomeration.” Add another buzzword to the retail lexicon.