China Leads World in Luxury Attitude and Spending

Affluent consumers in the U.S. and much of the world are pulling back on their spending and attitude toward luxury. However, in China, affluent consumers are choosing luxury in every aspect of the lives, according to a seven-country survey of households earning at least $150,000.

About 57 percent of wealthy Chinese shoppers say that the economic environment has prompted them to spend more on luxury in the past year, and 50 percent plan to boost spending in the next 12 months, according to the survey by the Luxury Institute, a New York-based consulting firm. Restraint is more evident in the U.S., where 10 percent of the wealthy stepped up luxury spending in the past year and 6 percent plan to spend more in the next 12 months. U.S. consumers are twice as likely as those in China (32% vs. 16%) to have trimmed luxury spending last year.

Meanwhile, in Europe the currency crisis did not stop 14 percent of wealthy shoppers in France and 17 percent of those in Italy from boosting luxury spending this year, according to the survey, which represents the top 10 percent in household income. However, 38 percent of high-income shoppers in both countries plan to cut back in the coming year.

In Japan, the March earthquake and tsunami dampened enthusiasm for luxury shopping, with 7 percent of wealthy Japanese consumers reporting higher levels of spending and 34 percent cutting back.

The most widespread retrenchment comes in the U.K., where 38 percent of wealthy shoppers have pared back luxury spending, and 41 percent plan reductions in coming months. Germany shows more stability compared to other rich nations: Only 17 percent of wealthy German consumers say that they are spending less on luxury now and 29 percent plan to trim luxuries in the coming year.

Across all seven markets, luxury travel is the category in which most wealthy consumers anticipate stepping up spending, with China far and away showing the strongest appetite, according to the survey.

In China, 58 percent of the wealthy plan to spend more on leisure travel, followed by 28 percent in Italy and 22 percent in Germany who say the same. A total of 16 percent of wealthy consumers in the U.K., and 18 percent in the U.S., Japan, France and Italy, plan to spend more on travel.

Spending plans across the board in each of the 26 luxury categories were substantially higher in China than in Europe and the U.S., with some of the biggest disparities showing in apparel, watches, jewelry and gifts where Chinese consumers were six to seven times more likely to boost spending, according to the survey. Also strong in China are luxury auto sales, with 43 percent of the wealthy planning to spend more on cars, compared to 11 percent in the U.S., U.K. and Japan.

Attitudes towards luxury are far more positive in China than they are in other rich nations, with 78 percent of those surveyed saying that luxury goods and services are more important in today's economy. The reverse is true in the U.S. where 80 percent of wealthy shoppers say that luxury has become less important.

More than 75 percent of Chinese say that luxury expenditures are prudent purchases, while 78 percent of wealthy consumers in the U.S., U.K., and Germany find them to be an extravagance. Similarly, 78 percent of China's wealthy shoppers say that luxury goods and services are an important part of their lifestyle in today's economy, compared to 25 percent in U.S. and Germany and 20 percent in France who agree that luxury remains central in their lives.

Wealthy Chinese consumers are also highly inclined to place a premium on exclusivity and quality, and discounting turns them off. More than half of wealthy Chinese and 49 percent of Japanese say that brands that discount their merchandise are not truly luxury brands. In the U.S. and Germany, one-third of wealthy consumers share the same dim view of discounting, as do 40 percent of wealthy shoppers in the U.K, Italy and France. Despite the dour attitude towards discounting, 56 percent of wealthy Chinese say that discounting has increased their overall spending on luxury and 50 percent plan to spend more on discounted luxury items in the coming months.

Survey: U.S. Luxury Spending Down 27%

Pam Danziger

Luxury consumers in the U.S. cut back their level of luxury spending during the second quarter of 2012 by 8.2 percent from first quarter, according to a recent survey. The decline in spending was even more pronounced when comparing year-over-year, down 26.9 percent.

The Luxury Consumption Index for the April to June period shows that “luxury consumers got nervous about their financial status,” said Pam Danziger, president of Unity Marketing, which runs the quarterly survey of affluent Americans.

“The up and down trajectory of the LCI that we've seen over the past year measures continued uncertainty among affluent consumers who make up the heavy lifters in the overall consumer economy,” Danziger, said. “Looking back at over the past three years, we find that the luxury consumers, particularly the ‘ultra-affluents’ (the top 2 percent of U.S. households), unleashed pent up demand for luxury indulgences during 2010, but since then affluent confidence, and their willingness to spend on luxury, has been constrained.”

Danziger said that spending among ultra-affluents dropped to the lowest level seen since 2008. In addition, nearly one-third of the affluents surveyed believe the country is worse off now than it was three months ago.

“If this key consumer segment for the super-premium luxury brands continues apace, many luxury marketers will have a hard time meeting high comparable sales goals this year,”  Danziger said. For the next six months, Unity Marketing continues to expect challenges for luxury brands to encourage the affluent to trade up to their high-end brands, especially the lower-income HENRYs (High Earners Not Rich Yet with HHI $100,000-$249,900), who have taken a hit to their wealth and earning potential as a result of the recession and ongoing weakness in the U.S. economy.”

Danziger points to the recent quarterly release by leather goods maker Coach Inc as an example of a brand that seriously overestimated HENRY customers' willingness to spend. Coach tried to eliminate coupon promotions tied directly to its discount outlets, which are the company's biggest source of revenue, and which attract HENRY customers looking to stretch their dollars. This misstep, she said, led to Coach reporting weak same store sales growth in the quarter ending June 30, which then caused its stock to have its worst day on Wall Street since the 9/11 attacks.

“The number of people willing and able to pay a premium for luxury brands, like Coach, is getting smaller as this weak economy continues,” she said.

Unity Marketing has been calculating the LCI since 2004 based upon five key measures of luxury consumer confidence including their expectations for future spending on luxury, their personal financial conditions and their overall assessment of the economy as a whole, in surveys conducted every three months among over 1,200 affluent luxury consumers.

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Survey: Ultra-Affluent Consumers are Spending Less at Luxe Department Stores

Barneys New York flagship store

Barneys New York, Nordstrom, and Bergdorf Goodman emerged as the top three luxury department store destinations among those with annual incomes of at least $250,000, according to a recent survey by Unity Marketing. However, a look back at the previous year shows ups and downs among ultra-affluent patronage of these retailers:

* Barneys New York, which currently attracts some 22 percent of ultra-affluent consumers, has weathered two quarters in the past year when patronage dipped as low as 16 percent. 

* Nordstrom ranks as the second most popular destination, however, its share of purchase among ultra-affluents dropped by more than 5 percentage points from the fourth quarter 2010 to first quarter 2011. 

In fact, among the seven leading luxury department stores included in Unity Marketing's luxury tracking survey, only one—Saks Fifth Avenue—captured a larger share of ultra-affluent shoppers this quarter as compared with last quarter, according to the survey titled, “The Luxury Report 2011: Ultimate Guide to the Luxury Consumer Market.”

Luxe department store patronage among ultra-affluents is down after peaking in third quarter 2010. The survey from the Stevens, Pa.-based luxury market research firm defines ultra affluents as those with annual household incomes of $250,000 and above, the wealthiest 2 percent of U.S. households who spend the most in the consumer economy.

Even more striking is the decline in the percentage of ultra-affluents shopping in these luxe department stores overall, said Pam Danziger, Unity Marketing president. While the percentage of ultra-affluents shopping in luxury department stores peaked at nearly 75 percent in the third quarter 2010, it has declined since, leveling off at about 70 percent. She says that relatively small declines in patronage on a percentage basis translate into big drops across the market. Regardless of ultra-affluents' favorite luxe department stores, it is clear that nearly a third of these wealthiest Americans are not passing through any of their doors each quarter.

“These top retailers—who are known for being destinations for the wealthiest customers—can serve as both a model and a cautionary tale for others who would like to operate in this space,” Danziger said. “While the popularity of each store waxes and wanes quarter-to-quarter, the overall trend is that ultra-affluents are slowing their pace of shopping in the luxury department store sector. If the downward trend among ultra-affluents continues, each of these stores may have to rethink their approach if they are to remain a compelling and attractive destination for the wealthy.”

Graff, Blancpain among Top-Rated Luxury Brands

Heart-shaped diamond necklace by Graff.

The Luxury Institute released its 2011 Luxury Brand Status Index survey of wealthy U.S. consumers. Watches, jewelry and automobiles (selling for at least $100,000) were rated on a one-to-ten scale by consumers who earn at least $200,000 a year. The top three brands in each category follows:

Blancpain L-Evolution

Jewelry
Graff 8.38
Buccellati 8.19
Asprey 8.05


Watches
Blancpain 8.35
Rolex 8.01
Vacheron Constantin 7.85

Ultra-Luxury Autos
Maybach 8.44
Bentley 8.32
Bugatti Veyron 8.22

Brands were rated based on quality, exclusivity, social status and overall ownership experience. In addition, these affluent consumers based their selection on price worthiness, their willingness to recommend it and the likelihood they'll buy it next time they make a purchase in the category.

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.”