Affluent Luxury Consumers Hold On Tight To Cash This Quarter
While the Wall Street Journal announced 'Gleam Returns to Luxury Sales,' many of the nation's affluent consumers see mostly gloom ahead, reports Unity Marketing
In continuing signs of struggles among the luxury consumer market -- the 'heavy lifters' in the overall retail economy -- Unity Marketing's exclusive Luxury Consumption Index (LCI) retreated in October 2010, dropping 6.2 points to 72.1 points. According to the latest survey of luxury consumer confidence among 1,364 affluent luxury consumers (avg. income $298.3k; net wealth $7.3 million; 46.3 yrs; male 47 percent; female 53 percent). These results have important implications for marketers and retailers preparing for the 2010 holiday season.
Luxury consumersstarted 2010 with a feeling of optimism that the worst of the economic turmoil was over. But through the course of the year, reality hasn't lived up to those expectations, so we have seen a retreat of the LCI throughout the year," says Pam Danziger, president of Unity Marketing and author of the upcoming book, Putting the Luxe Back in Luxury. "Lower levels of affluent consumer confidence are playing out in terms of reduced of spending on luxuries. In the third quarter, affluent consumers spent 1.4 percent less on luxuries than they did in the second quarter, with declines seen in expenditures in most of the 22 categories of luxury goods and services included in the survey.
Danziger takes issue with the robust luxury forecast by Bain and Company reported in the October 18 Wall Street Journal (http://bit.ly/df5oBC). "The word from Bain is that the luxury goods sector's 'recovery has been faster than expected.' I disagree. The affluent consumers surveyed show a very reserved and cautious attitude about future luxury spending. Nearly half (49 percent) expect to spend the same on luxury in the next twelve months and about one-fourth (24 percent) say they will spend less. While luxury consumer confidence is much higher now than it was at the close of 2008, Unity Marketing's measure of the pulse of the affluent consumer market still signals caution for marketers. Now is not the time to sit back and breathe a sigh of relief. We still have a long way to go before the affluent consumers feel confident enough to spend as freely as they did in 2006 and 2007."
What the latest luxury consumer survey finds
Among the findings in the third quarter Luxury Tracking Study:
- Spending on luxury declined 1.4 percent overall while ultra-affluents cut their luxury spending by 11 percent quarter-to-quarter. Luxury consumer spending dropped a modest 1.4 percent in the third quarter from second, from $31,665 on average to $31,225. However, the ultra-affluents (top 2 percent of U.S. households with incomes over $250,000) cut back even more, reducing their third quarter spending by 11 percent from second to the third quarter. "This pull back among the ultra-affluent, the top 2 percent of U.S. households, will have the strongest impact on the heritage luxury brands at the high end of the luxury market," Danziger explains. The good news for luxury marketers is that luxury consumers spent 33 percent more this year as compared with last year. But marketers should prepare for another tough fourth quarter as the affluent look once again for more bargains and discounts.
- Luxury personal electronics will be top pick for Christmas giving. The only luxury goods category posting quarter-to-quarter growth was personal electronics. More affluents will turn to gift selections from among these practical, yet essential high-tech tools, including laptop computers, GPS, cell phones, MP3 players and eBook readers. This is sure to be good news for marketers like Apple, Amazon, Best Buy and Radio Shack.
- More luxury consumers purchased luxury in the third quarter, even while they spent less overall. Pent-up demand for something new drove a higher percentage of affluent luxury consumers to the store this quarter, even while they spent less money making their purchases. Luxury goods and services categories that captured a greater share of affluent shoppers this quarter as compared to last included luxury clothing and apparel, wine and spirits, fine dining, entertainment and travel. Danziger explains, "The two key metrics that the luxury tracking survey measures -- spending and purchase incidence -- are totally independent variables. Purchase incidence is the share of affluent consumers who made a purchase in one of the 22 product and service categories tracked. Spending is the average amount buyers actually spent making purchases. Luxury goods and service marketers need to focus on both metrics to increase sales and profits; that is, they need to both attract more affluent shoppers and get those affluent shoppers to spend more. What the data says about the third quarter is that in these five categories marketers attracted a greater share of customers, but they were not able to convert them into higher-spending customers."
- Luxury consumers traded down to more mass brands in search of value. Luxury consumers continued to pay careful attention to keeping within their spending budgets this quarter. They selectively indulged in luxuries by searching out discounts and choosing value brands. For example, more ultra-affluent shoppers frequented Costco (35.5 percent) and Target (36.1 percent) this quarter than Neiman Marcus (21.3 percent).
In the fashion boutique sector, Ann Taylor (17.6 percent), Banana Republic (16.6 percent) and Ann Taylor Loft (16.1 percent), were patronized more by ultra-affluent shoppers this quarter than traditional 'luxe' brands such as Chanel (10.8 percent), Louis Vuitton (11 percent) or Coach (11.8 percent).
On the latest 3Q2010 survey results, Tom Bodenberg, Unity Marketing's chief consumer economist, said, "After two quarters of stagnation, the index now shows a decline. This portends a holiday period where retailers need to be even more nimble, need to control the supply chain, and in the case of experiences, limit supply more than originally planned. Fifteen months ago I mentioned the downward spiral dating from early 2008 had bottomed out. The subsequent period did show an increase, but it has reached a plateau and is now declining again."
About Unity Marketing's Luxury Tracking Study
Launched in January 2004, and every three months thereafter, Unity Marketing has measured the pulse of the saffluent consumer in a longitudinal survey of 1,200+ affluent consumer households. One-third of each survey is comprised of ultra-affluents (HHI $250,000 and above).
Each quarter the Luxury Consumer Tracking Study reports what luxuries they bought during the past quarter, how much they spent, where they bought, the luxury brands they became aware of and used, and how they felt about their current and prospective financial status. A total of 22 major categories of luxury goods and services are included in the poll, including clothing, fashion accessories, home luxuries, travel, dining and jewelry.
Based upon the results of the survey, Unity Marketing also publishes a Luxury Consumption Index which tracks how luxury consumers feel and helps marketers anticipate consumers spending in the coming quarters.
In addition every quarter a special investigation of key trends in the luxury market are studied. In the current quarter luxury consumers and their values are studied. The findings of this special investigation is available as a separate trend report) or as part of the full Luxury Tracking Report.
Special Investigation: Luxury Consumers & What They Value Most
As each wave of tracking studies is fielded, special topics of interest to luxury marketers are researched in more depth and published in a separate trend report. In the third quarter 2010 Unity Marketing's Luxury Tracking Study investigated luxury consumer values.
The special investigation questions were designed to help luxury home marketers and brands understand their affluent customers better, included:
- How important shared values are when choosing those with whom the affluent consumer socializes, works or buys. Surprising news, shared values are more important when choosing an employer than when choosing a company with which to do business.
- Values that are most important when it comes to patronizing a company, such as behaving ethically, being environmentally responsible, treating employees well, offering high quality products and services.
- Importance of key issues in affluent's every day life, including health and wellness; society and politics; family and emotional health; career and finances.
- Key values that are important to an affluent's daily life, including security, warm relationships with others, fun, self-fulfillment. Among the key findings is that affluents put the greatest importance on security, including financial security, which has important implications for financial and insurance marketers.