Spending Levels of Affluent Consumers Seen Likely to Rise

CHICAGO — While economic conditions have clearly impacted the purchase patterns of America's affluent consumers, indications are that the vast majority expect to return to pre-recession spending levels when the economy improves and recent losses in net worth are recovered.

Moreover, the size and wealth of today's affluent market is such that it represents "substantial opportunity" even during difficult economic times.

That's the view of Ron Kurtz, president of The American Affluence Research Center (AARC), an Alpharetta, GA-based organization that focuses on the values, lifestyles, attitudes and purchasing behaviors of America's most affluent consumers.

Kurtz offered his observations last month during Kitchen & Bath Design News' 2010 "Leaders Conference," a first-ever event aimed at providing product suppliers with forecasts and insights into the housing, residential remodeling and kitchen/bath markets.

Kurtz's remarks were based on data drawn from affluent-market tracking surveys that AARC has been conducting twice a year since 2002. The surveys are conducted among the wealthiest 10% of U.S. households, based on a minimum $800,000 net worth - approximately 11.4 million households representing about a third of America's total gross domestic product.

Positive Changes

According to Kurtz, AARC's latest surveys reveal that anticipated changes in spending among America's affluent - prime prospects for kitchen/bath product purchases - are "much more positive" than the historic lows seen in 2009, but are still below pre-recession levels.

In the AARC's spring 2010 survey, about 50% of the affluent market indicated plans to reduce or defer expenditures over the next 12 months, Kurtz said. Nearly one-quarter of those surveyed said they had not reduced or deferred expenditures, and did not plan to do so in the next 12 months. The group with a net worth of over $6 million (the top 1% of U.S. households) was most likely to continue to spend at a strong pace, Kurtz said.

Evidence of "frugal fatigue" resulting from the past two years of reduced spending also surfaced in the survey, according to Kurtz.

"Although spending numbers were not as high as in years past, they do show an increase from the lowest numbers seen during the recession," Kurtz said. "Targeting the market segments that are reacting to ‘frugal fatigue' is the best bet for anyone trying to benefit from the slight improvement in affluent spending plans."

Kurtz said that despite a popular belief that affluent consumers have been straying from conspicuous consumption because they haven't felt comfortable spending lavishly during difficult economic times, only a relative handful report their spending has been curtailed by "luxury shame" or "stealth wealth."

In contrast, Kurtz said, the decline in sales experienced by many luxury brands and retailers is believed to be largely attributable to the loss of business from the "aspirational" or "mass affluent."

"These are the people who had the income ($100,000 to $200,000) to buy marginally luxurious products, but not the wealth or credit to sustain such purchases on any large scale, especially when they started to lose their jobs or their bonuses due to the recession," Kurtz said.

According to Kurtz, while some consumer analysts predict that current economic challenges will lead to an era of substantially reduced spending, a decline of the luxury category, and a new emphasis on "value" replacing "glitz," AARC research "suggests a different scenario."

"The affluent market has always leaned towards careful spending and aggressive saving - and lives within its means," Kurtz observed.

At least 80% of the affluent expect to return to pre-recession spending levels when the economy and recent losses in net worth are recovered, Kurtz noted.

"As for the so-called ‘new' emphasis on value, that's not a new concept for affluent consumers, most of whom have always given priority to quality as defined by durability, workmanship, enduring or traditional style, and good service in their quest for good value," Kurtz said. "As smart consumers, they look for attractive prices that enhance the value of their purchases."