Affluent Americans Replacing Jewelry and Watches with Leisure

With the difficult recovery, affluent Americans are discovering that the most valued goods, services and experiences are not material, but leisure-oriented pursuits, according to the study of households with an average income of $332,000 and a net worth of $3.3 million. The conclusions suggest that while conspicuous consumption is on the wane, conspicuous leisure may soon be on the rise.

The tastes of the affluent have changed little since 2008, with only the desires for electric/hybrid cars and jewelry dropping significantly, according to the study by the Luxury Institute, a market research firm, and Resonance Consultancy, a branding and communications firm.

“In tough economic times, it's not surprising that wealthy consumers are shying away from more visual displays of wealth such as fine jewelry and watches,” says Milton Pedraza, Luxury Institute CEO. “The good news is that the desirability of philanthropy has held steady. Large gifts are a very public way of communicating status.”

Companies that will benefit by the shift from conspicuous consumption to conspicuous leisure are likely to be high-end resorts, highly-differentiated hotels and experience purveyors from travel and tour curators to leisure outfitters, according to the study, what was done as a partnership with the Resonance Consultancy, which specializes in developing brand strategies.

“Affluent households today consider leisure-oriented pursuits such as exotic vacations, vacation homes, the freedom to work from home and extended time off work to be the most desirable luxuries,” says Chris Fair, president of Resonance Consultancy. “It's a significant change from the past when the most desired luxuries were usually material goods.”

Survey: Consumer Confidence Among the Affluent Drops Sharply

The top 20 percent of households by income are no longer feeling confident about economic conditions in the U.S. and are spending far less, according to a quarterly survey of the affluent consumers.

The Unity Marketing Luxury Consumption Index took its steepest quarterly plunge since the recession (between fourth quarter 2007 to first quarter 2008), falling 16.8 points to bottom out at 66 points. This is significantly lower than the previous period’s 82.8 points. The LCI currently stands close to the level attained at the onset of the 2007-2008 recession.

"Consumer confidence among the affluent (which account for 40 percent of consumer spending) has fallen sharply since the beginning of 2011,” said Pam Danziger, president of Unity Marketing, which runs the survey. “Not since the middle of 2009 has it been so low.”

The survey of 1,272 consumers with an average income of $301,000 and an average net worth of $856,000 was conducted July 6-13.

“If those at the top income levels feel stressed and unwilling to spend, imagine what it says about people living in middle-income households,” Danziger said. “We stand on the precipice of a double-dip recession, if the affluent consumer’s confidence doesn't turn up in the next quarter.”

Corresponding to the decline in luxury consumer confidence, the average amount spent by affluent consumers on luxury goods and services in the second quarter 2011 declined by 8.4 percent from the first quarter and dropped 18.4 percent over same quarter last year.

High net worth consumers (defined in the survey as having $1 million or more of investible assets and representing some 47 percent of those surveyed) have more to spend on luxury, as the high earners make do without. According to the survey, 42 percent of high net worth consumers expect to increase their spending on luxury goods as compared to 14 percent of high-wage earning affluents.

“The high net worth consumers in our sample feel significantly more confident about their financial status than those with lower net worth,” Danziger said.

“Market pundits have been telling us that the 2007-2009 recession has run its course, and that it was only a matter of time before this event would have diffused into the consumer economy. However, this is not the case, borne out by continued weakness in consumer sentiment,” said Tom Bodenberg, Unity Marketing's chief consumer economist. “On the other hand, the stock market has shown firm, almost counter-intuitive strength as many organizations report high earnings. The rise in the stock market translates into a rise in the investment portfolios of luxury goods consumers, which translates into greater discretionary spending, especially among the high net worth segment, as distinguished from the high earners who are holding their spending in check,” Bodenberg said.

Danziger added, “Increasingly income alone is not an accurate measure of a household's spending power. In the current economy many high-earning households are living pay check to pay check just like those in the middle-income brackets. Once the monthly expenses are met, the lower net worth affluents don't have much left over with which to indulge in luxury.”

The Wealthiest Shoppers Choose Amazon.com

The wealthiest 2 percent of the U.S. population have embraced online shopping with Amazon.com by far their favorite online retailer, according to a recent Unity Marketing survey.

“Amazon.com has consistently emerged in Unity Marketing’s quarterly surveys as ultra-affluents’ top online shopping destination, regularly attracting about 45 percent of all ultra-affluent shoppers, a percentage that is typically two to three times greater than the next most popular website,’ said Pam Danziger, president of Unity Marketing.

Ultra-affluents are defined by Danziger and Unity Marketing as persons with annual incomes of at least $250,000.

“For the most discerning affluent shoppers Amazon offers outstanding levels of customer service along with an expansive product selection,” Danziger added. “Further, Amazon ‘learns’ the shoppers preferences and offers new selections based upon previous needs which boosts the company's revenues and the customer's satisfaction.”

What stands out from the data, however, is the interest ultra-affluents have in online shops that are geared toward savings. In Unity Marketing's most recent luxury tracking survey, among ultra-affluents surveyed, some 14 percent shopped through auction site eBay.com, just over 10 percent frequented local coupon site Groupon.com, and about 8 percent visited the local “want ad” site, Craigslist.com. All three of these frugal shopping sites were in the top eight among all sites visited.

Also attracting the bargain-hunting, yet wealthy “fashionistas” are flash sale sites like Shopittome.com, Gilt.com, Hautelook.com, BeyondtheRack.com and Amazon's new entry into the category, MyHabit.com, according to the report. Another favorite site for the wealthiest tech-oriented bargain shopper is Buy.com.

“While ultra-affluent consumers may make purchases of top-end luxury items online, the data show that these consumers are also interested in finding great deals and perhaps selling a few of their own unwanted items online,” Danziger said. “It is important for marketers to realize that their wealthiest shoppers are keenly interested in value and bargains, particularly online.  These deal-oriented sites attract even those at the highest income levels.”

Survey: Luxury Up 8% in June, Jewelry Showed Strength and Weakness

The De Beers Jewelry Store on Rodeo Drive in Los Angeles.

In its ninth consecutive month of year-over-year gains, the SpendingPulse Luxury Index (excluding Jewelry) for June was up 8.2 percent, more in line with first quarter of the year and better than the 4.7 percent gains seen in May 2011, according to MasterCard Advisors SpendingPulse, a macroeconomic report tracking national retail and services sales.

Without providing figures, the company said in-store jewelry sales were strong for June, boosted by graduations and weddings. However, online jewelry sales fell by 12.9 percent for the month.

Overall year-over-year growth was supported by gasoline and grocery sales. But, as already noted, not all categories showed strength. For example, specialty apparel showed gains while the electronics and appliances, furniture and furnishings and department stores sectors remained in negative territory.

Enjoying its 23rd straight month in positive territory, and now in its eighth consecutive month of double-digit year-over-year growth, e-Commerce was up 15.2 percent over June 2010. However, as mentioned, not all its sub-categories showed growth. In addition to the decline in jewelry sales, The family clothing category slipped by 0.2 percent year-over-year. In contrast, online Women’s clothing sales grew by 12.2 percent year-over-year.

“As we move into the summer, discretionary spending tends to shift to vacation-related categories, usually reflected in travel sales and particularly in lodging, although we are seeing some weakness in those areas,” said Michael McNamara, VP, Research and Analysis for MasterCard Advisors SpendingPulse. “At the same time, June is peak season for weddings and graduations, and this may have helped the continuing strong growth of both luxury and jewelry sectors.”

McNamara noted that broad retail growth continued to be hampered by high gas prices, although they are coming down from their early May highs, as well as high unemployment. Those factors may have been further exacerbated in May by exceptionally wet weather in some parts of the country. “On the other hand,” he said, “unfavorable weather and high gasoline prices appear to have helped e-commerce to its eighth consecutive month of double-digit growth.”