 Special Section - February 2008  |
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Luxury Spending Tightens
Results from affluent consumers surveyed reveal the well-off aren’t immune to national economic woes Luxury consumers’ confidence at the beginning of 2008 has never been lower, dropping 23.8 points from the third quarter to 63.6 points in the fourth quarter of 2007, as measured by Unity Marketing’s Luxury Consumption Index. As affluent consumers’ confidence dropped, so did their spending on luxury goods and services, down more than 20 percent from the first half of 2007 to the second. The index is based upon a survey of more than 1,281 luxury consumers’ (average income $155,700 and age 46.6 years) purchases and spending on luxuries in the fourth quarter. Pam Danziger, president of Unity Marketing, says, “Affluent consumers, just like everybody else, feel the pain this time around. Since Unity Marketing began its quarterly tracking study in January 2004, luxury consumers have never expressed such a dismal view of their financial status, their feelings about the direction of the country as a whole and their plans for future spending.” As a result, luxury consumers are holding back on spending in the purely discretionary category of luxury. Their spending on luxuries in the second half of 2007, Unity reports, dropped more than 20 percent, from an average of $29,307 to $24,301 in the third and fourth quarters. “Now the pain is starting to spread to the luxury retailers and marketers worldwide,” says Danziger, “many of which are reporting weaker than expected sales in the U.S. market in the vital fourth quarter period.” Thomas Bodenberg, Unity Marketing's economic forecaster says, “The prognosis is not good in the short term, as witnessed by the concerns incorporated in the Luxury Consumption Index. The index was developed to both measure the level of luxury consumer confidence and to predict trends in the direction of the luxury market overall. A number of key factors that were in full swing last summer accelerated in the fall to erode luxury consumer confidence, and thus erode spending. The light, if any, at the end of the tunnel, could be the recent moves by the Federal Reserve to lower interest rates. Should inflation occur due to the relaxing of the money supply, consumers may look at certain luxury items, like jewelry, as ‘investments’, or hedges against inflation.” The factor that caused the consumption index to fall most is the poor view luxury consumers hold about the country’s leadership. “We foresee a very competitive market ahead for the luxury industry at least until the 2008 presidential election. The promise of new leadership will lift spirits and hopefully encourage the affluent to open their wallets a little more,” Danziger notes. “The conventional wisdom is that the affluent market is unaffected by the economic ups and downs that impact the average consumer. But today the affluent market is far more diverse and stratified than it historically ever has been.” Luxury retailers need to understand the segments within their target market and develop strategies that differentiate the passions of these segments. Resources
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