NEW YORK (Reuters) - Susan Coyne had her heart set on a new pair of earrings at Saks Fifth Avenue in New York, a purchase she would not have thought twice about even a few weeks ago.
But on Tuesday, she could not go through with it.
"I felt guilty about buying them. All my investments are down," said Coyne, who has been a Saks Inc sales associate for 31 years. "People are scared. I'm a big shopper here, too, but I'm holding back."
Luxury shoppers such as the Saks faithful make up only a small, elite portion of the U.S. economy, but tend to have an outsized effect on spending. They have kept their wallets open long after middle-income shoppers shut down under the pressure of a housing slump and rising food and fuel prices.
But now the last bastion of consumer strength finally appears to be caving due to the global financial crisis that has assaulted investment wealth as well as real estate values.
Even if a consumer still has millions in the bank, psychology plays a big role at the cash register.
"Of course you can continue to afford it," said Eva Jeanbart-Lorenzotti, chief executive of Vivre, a luxury goods catalog and online store whose wares include a $45 sterling silver ice cream spoon and a $3,800 mink chair. "Whether or not you feel like doing it is another question."
Luxury sales -- including those at high-end department stores and restaurants -- fell 4.8 percent in September versus an 11 percent rise in August that was boosted by foreign tourists, according to SpendingPulse, the retail data service of MasterCard Inc's MasterCard Advisors.
Looking ahead, more than three-quarters of families with a net worth of $1 million to $10 million said they planned to spend less on luxury items through year's end, according to a survey of 439 families conducted in late September by research firm Prince & Associates.
The sinking stock market ultimately cracked luxury shoppers' confidence in September.
Charles Grom, retail sector analyst with JPMorgan, calls it the "CNBC effect," referring to the cable business channel where would-be shoppers watched in horror as their investments went up in smoke.
Restoring a sense of confidence could take time. Banking crises are usually followed by two years of subpar economic growth, and that does not bode well for stocks.
Grom said September sales were probably lousy at luxury chains including Saks as "aspiration shopping has screeched to a halt and higher-income consumer spending drops with the stock market." Same-store sales results are due on Wednesday and Thursday.
That could take a new toll on retailers as they head into the crucial holiday shopping season, with the gloomier forecasters predicting the weakest season in 17 years.
Lorenzotti said the financial crisis finally caught up with Vivre on September 17, when U.S. stocks plummeted to three-year lows following the failure of Lehman Brothers and a bailout of insurance giant American International Group.
"Since that day in September, business has been softer than it was in the beginning of the year, by far," she said.
In that time, there has been a significant decline in sales of expensive handbags, cars, travel, jewelry and yachts, according to Milton Pedraza, chief executive of the Luxury Institute, which researches high net-worth consumers.
"You know how they say the credit markets froze? Well, wealthy consumers froze right along with them," Pedraza said.
Neiman Marcus, which also runs Bergdorf Goodman, acknowledged the same last month.
"Our customers are heavily invested in the markets ... and turmoil in financial markets, and the ensuing instability, negatively affects customers' buying patterns," CEO Burt Tansky said after the upscale retailer reported a quarterly loss that more than doubled.
It's not just investors who are feeling the pain. Thousands of Wall Street workers who fueled a luxury spending boom face job losses and deep cuts in their annual bonuses this year.
"Look at the carnage" on Wall Street, said Ken Perkins, president of Retail Metrics. "A lot of high-end retailers rely very heavily on the financial services industry. I think they are at risk."
But some indulgences are harder to give up.
J Brand jeans, which can cost as much as $271 per pair at stores like Barneys New York, said sales are still buoyant.
"We hear from our retailers that there are only a few vendors above sales plans, and we are one of them," CEO Jeff Rudes said in an email.
And in an era when even cold hard cash could lose its value, priceless works of art are still commanding buyers.
"When times get tough, we see more people wanting to sell ... artistic heirlooms and treasures," said Nicholas Lowry, president of Swann Auction Galleries. "In turn, the increase in valuable art attracts additional buyers."
Swann specializes in rare books and photographs and said its three auctions since mid-September exceeded expectations. Meanwhile, a Damien Hirst auction at Sotheby's in London on September 16 broke new records with 218 items sold for $198 million.
Works of art are "a little bit like gold," said the Luxury Institute's Pedraza. "Historically they do hold up, and they actually increase in value. The key is that they really are unique and exclusive."
Reporting by Martinne Geller; Additional reporting by Emily Kaiser in Washington and Sarah Coffey and Aarthi Sivaraman in New York; Editing by Michele Gershberg and Eddie Evans