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.”

Luxury Consumption Index Stalls, Responding to Mixed Market Signals

Unity Marketing's Luxury Consumption Index stalled at 78.3 points in July 2010 as affluent consumers display uncertainty about prospects for the economy in the next three months. The survey’s founder says this apparent lull in the luxury economy “is reason for concern.”

Significantly more luxury consumers (36 percent) say the country as a whole is worse off now as compared with three months ago—a 5 percent rise, according to the survey of 1,349 luxury consumers was conducted July 3-8, 2010 (Average income $306,700 and net worth $15.2 million; 44.8 years; 45 percent male and 55 percent female).

Value positioning is key for luxury success through third and fourth quarters 2010, says Pam Danziger, president of Unity Marketing, a marketing consulting firm.

“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,” Danziger said. “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.”

Survey findings in the quarterly survey, include:

* 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.

* Categories that attracted higher levels of spending among luxury consumers in the second quarter included luxury beauty and cosmetics, high-end cooking tools, men’s luxury clothing and apparel, men’s luxury fashion accessories, home electronics and travel.

* Aspirational affluents (incomes $100,000-$249,999) started to trade up once again to luxury, according to the survey. They increased luxury spending by nearly 30 percent in the quarter, their highest levels of spending seen throughout 2009. High-end clothing, fashion accessories, personal electronics, wine and spirits, and beauty products were the most popular items.

The pace of growth in luxury consumer spending will remain modest over the next two quarters, according to Tom Bodenberg, Unity Marketing's chief consumer economist.

“Affluents still have a lot of uncertainty about the economy which dictates caution when it comes to spending on luxuries,” he said. “We don't expect to see moderation on this cautious attitude until the beginning of 2011.”

Luxury Consumers Curtail Conspicuous Consumption

The strong demand for luxury goods and services in the U.S. during the past two to three years has largely come to an end as conspicuous consumption seems to be out of favor with affluent households, according to the results of a recent survey.

Luxury consumer confidence as measured in the Luxury Consumption Index “took a deep dive to levels not seen since the recessionary period of 2008 and 2009,” said Pam Danziger, president of Unity Marketing, which produces the quarterly survey.

The LCI saw a decline of nearly 15 percent in the average amount spent on luxury in the fourth quarter of 2011. The latest luxury tracking survey was conducted January 7-18, among 1,333 affluent luxury consumers with an average income of $286.300. They represent the top 20 percent of U.S. households

“The LCI has been on a topsy-turvy course since 2010, one quarter it goes up, the next down. But looking over the course of the last two years, the LCI lost more than it gained,” Danziger said. “At the start of 2012 the percentage of luxury consumers expressing a definite willingness to spend more on luxury (one of the major components of the index) was down.”

 

Tom Bodenberg, Unity Marketing's consumer economist, says the results of the survey show that luxury consumers have become “non-committal.”  

“There appears to be a trend of non-conspicuous consumption—perhaps as fallout from the 'Occupy' movement—among North American luxury consumers,” he said. “Buying behavior will shift to an almost 'hidden' form of consumption of luxury goods—where ostentation is minimized. The actionable demand for luxury goods and services, on the whole, is flat and still substantially below the levels of two to three years ago. What is interesting is that this apparently 'recession-proof' segment of the marketplace has also been greatly affected by the downturn. Media reports of a 'renaissance' in the luxury market appears to be limited to an extreme top tier of consumers, a small number compared with the bulk of the luxury marketplace potential.”

Danziger says affluent customers are looking to find value when they shop and luxury brands need to recognize this.

“If your brand doesn't deliver a suitable return on investment, they'll turn to competitive brands that will give them high quality without such an extravagant investment,” she said. “Take Coach, for example, ranked this quarter as the top fashion boutique destination among luxury consumers, as well as the number one fashion accessories brand. Coach offers its customers high quality, long lasting and still luxurious handbags but with an average price around $300, making the bags expensive for the masses, but affordable for the 'classes.”

Luxury Consumer Confidence and Spending Rise

The outlook for the luxury industry is improving, according to luxury research and marketing firm Unity Marketing. The firm’s measure of affluent consumer confidence, the Luxury Consumption Index, improved by 4 points to reach 76.1 for the first quarter 2011. 

"The uptick in this quarter's LCI reveals a more positive outlook among affluent consumers about the economy at large, as well as increased optimism about their personal economic situation," said Pam Danziger, Unity Marketing president. "Affluents backed up their growing confidence by spending 4.1 percent more on luxury goods and services in the fourth quarter as compared with the same period last year."

Luxury categories that posted strongest growth year-over-year as measured by the average amount spent by affluents, included: Kitchenware and housewares (including food processors, juicers, espresso machines), electronics (such as high-end televisions and digital book readers and travel (luxury cruises).

"While we may not see the boom times of 2003-2007, the current LCI shows an increase from the previous quarter, and may signify that the recent bump in retail demand may be sustainable,” said Tom Bodenberg, Unity Marketing's chief consumer economist. “Closer analysis reveals that despite a noted reduction of market pessimism, this has yet to fully translate into increased demand."

The latest luxury consumer survey results are published in Unity Marketing's Luxury Tracking Report 1Q2011 -- The latest report on what luxuries affluents are buying and how much they are spending.  The survey was conducted January 6-13, 2011 among 1,237 affluent luxury consumers (average income $308,700; median net worth $861,000; age 43.9 yrs; 42 percent male and 58 percent female).