Affluent Americans remain cautious about indulgent spending

Stevens, Pa. – July 21, 2010 – Luxury marketers have enjoyed a few brief quarters of spending patterns that seemed to be returning to a pre-recession 'normal,' but Unity Marketing's exclusive Luxury Consumption Index has stalled at 78.3 points in July 2010 as affluent consumers reflect uncertainty about prospects for the economy in the next three months. Because the LCI has proven a reliable predictor of consumer behavior, this stalling is reason for concern.

In one of the five key measures that make up the index, significantly more luxury consumers (36 percent) say the country as a whole is worse off now as compared with three months ago; that reflects a rise from only 31 percent who said the same in March 2010. This according to a survey of 1,349 luxury consumers conducted from July 3-8, 2010 (Average income $306.7k and net worth $15.2 million; 44.8 years; 45 percent male and 55 percent female).

Value positioning key for luxury success through third and fourth quarters 2010 Commenting on what the latest findings from Unity Marketing's Luxury Tracking Study project for the luxury market through the end of the year, Pam Danziger, president of Unity Marketing said, "Without a doubt the luxury consumer market is in a much better place today than it was a year or so ago, but the latest survey warns marketers not to ease up or be over-confident that the recession's effect on the luxury market are over.

"Nearly three out of four luxury consumers surveyed believe that the recession continues, which in turn impacts spending on luxury goods and services. Marketers are advised to continue to position luxury as a value proposition, by keeping luxury connotations and image up front in advertising, packaging and service, but communicating in a very subtle, almost one-on-one way, affordable pricing," Danziger explains.

Among the findings in the latest Luxury Tracking Study:

  • Spending on luxury rose a modest 7.7 percent quarter-to-quarter. Luxury consumer spending, however, rose dramatically year-over-year, up nearly 60 percent from $19,952 on average to $31,665. Unity expects the same trends toward modest quarter-to-quarter spending increases to continue throughout 2010. Luxury marketers must remain vigilant to rising competition coming from mass and premium brands that offer increasingly high-quality goods at price points significantly less than the upper-tier luxury brands command. For example, Ann Taylor Loft, the company's "upper-moderate" priced brand, tops the list of fashion boutique destinations for ultra-affluent shoppers (22 percent) in the second quarter, way ahead of higher-priced Ann Taylor brand (12 percent).
  • Trending categories that attracted higher levels of spending among luxury consumers in the second quarter included:
  • Luxury beauty and cosmetics, especially perfumes, sun care and skin care products;
  • High-end cook's tools, notably small kitchen appliances;
  • Luxury clothing and apparel, with men continuing to up their game in fashion;
  • Luxury fashion accessories, as men's brief cases, lap top cases, carryalls and wallets posted strong growth in spending;
  • Home electronics, as promotionally-priced high-tech televisions attracted more buyers; and
  • Travel, which exceeded quarterly expenditures throughout 2009 and first quarter 2010.

Aspirational affluents (incomes $100,000-$249,999) started to trade up once again to luxury. Aspirationals increased luxury spending by nearly 30 percent in the current quarter, posting their highest levels of spending seen throughout 2009. In particular they indulged in more personal luxuries, such as high-end clothing, fashion accessories, personal electronics, wine and spirits and beauty products. While the typical aspirational consumer spends only one-fourth to one-third of what an ultra-affluent consumer spends on luxury, the fact that there are about ten aspirational households to each ultra-affluent means that their aggregate spending is critical to boosting the performance of premium, as opposed to top-tier luxury brands, and retailers that target a wider range of price points.

On the latest survey results, Tom Bodenberg, Unity Marketing's chief consumer economist, said, "As we look to luxury consumer spending in the second half of 2010, affluent consumers' pent-up demand for luxury indulgences after doing without through 2008 and 2009 has crested. We expect the pace of growth in luxury consumer spending to remain modest over the next two quarters. Affluents still have a lot of uncertainty about the economy which dictates caution when it comes to spending on luxuries. We don't expect to see moderation on this cautious attitude until the beginning of 2011. As marketers and retailers plan for the critical fourth quarter, they will need to keep promotions in play, as consumers will continue to hold back without the extra incentive of discounts or added-value deals that sweeten the pot."

Read more information about the Luxury Consumption Index and the results of Unity Marketing's latest survey of affluent consumer spending.

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