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The current issue of Newsweek (October 22, 2007) has a story about how the anemic housing market, the rise in fuel costs and general economic anxiety have led people to choose to scaling down rather than trading up.

The piece, entitled “The Latte Era Grinds Down,” makes this point: “For the past several years, American consumers at every rung of the income ladder have been trading up—splurging on a growing array of luxury products, from $4 lattes to $4,000 handbags. With easy access to credit, especially home-equity loans, middle-class Americans began regularly trading up for items that appealed to them, buying food staples at Kroger but splurging on Kobe beef at Whole Foods. Suddenly, everybody was a luxury consumer—for certain items.

“But as the saying goes, what goes up must come down. Now many of those same Americans who traded up are shunning luxuries and returning to basics. The upshot: many of the companies that expanded in the hopes of reaching a mass audience of luxury consumers are suffering.”

Our cars, houses and even are coffee mugs are being down-sized. (Cheap coffee at McDonald’s is enjoying a sales boom.) In a recent survey, 70-percent said they were not spending as much on certain accessories such as watches and bags.

But don’t despair! The article also notes that trading up expert and author Michael Silverstein “points to powerful, long-term trends that suggest customers will continue to reach for luxury. Real income is still growing, and ‘trading up has been driven over the long term by women going to work and earning wages that are closer to parity with men.’”

That said, the situation makes for an even stronger argument that, now more than ever, trade up brands must market with real insight and conviction, not to mention providing what we at Barefoot have coined “Reasons to Rationalize.” This downturn, if indeed that’s what it is, can actually help some smart luxury brands build business by seizing consumers’ attention (and pocketbooks) while competitors are inclined to adopt a wait-and-see attitude.