The current downturn has not spared the wealthy or their taste for luxury
Oct 25, 2009
Adweek.com
Mark Dolliver

Look up “luxury” in the dictionary and you’ll find a passage defining it as “something adding to pleasure or comfort but not absolutely necessary.” With economic conditions compelling even affluent consumers to pay more heed to what’s “absolutely necessary,” how is the appetite for luxurious “pleasure or comfort” holding up? Survey data on the attitudes of affluent consumers, plus the observations of people in the business of tracking their thinking, point to a market that faces a wealth of challenges.

Before the current recession, popular wisdom said wealthy people tended to be relatively untouched by the ups and downs of the economy and would keep buying high-end products and services no matter what. However true that might have been in the past, the current downturn — with its sharp decline in stock prices and real estate values — has not spared the wealthy or their taste for luxury.

AFFLUENT BUT PRACTICAL
One gets a taste of this from the Luxury Institute’s State of the Luxury Industry 2009 Survey, developed in conjunction with Evins Communications and released last month, based on August fieldwork. Seventy-seven percent of the respondents (a cohort whose yearly household income averages $415,000 and whose household net worth averages $4.9 million) agreed that luxury is less important in today’s economy. Fifty-eight percent said they are “spending more on essentials rather than on what they want”; 56 percent said they are “being more practical about spending.”

This fall’s tracking study of high-net-worth/high-income consumers by the American Affluence Research Center gives another telling sign of their current mind-set: 9 percent said they would spend “nothing” this December on holiday gifts, and those who do plan to spend anticipate laying out 5 percent less on average than they did last year.

It’s not just a matter of feeling chastened by the economy’s travails. “Even wealthy people were living beyond their means,” says Milton Pedraza, chief executive officer of the Luxury Institute, a rating and research organization that tracks the luxury field. “Now, whether they want to or not, they’re being forced to live within their means,” Pedraza says. And when they do spend, this means bringing a more critical kind of thinking to the process. “They’re more value-driven,” says Greg Furman, chairman of the Luxury Marketing Council, whose membership includes top executives of luxury brands. “They want to understand the price/value equation.”

Opinions do differ, though, about the depth of the change in wealthy consumers’ behavior. “We do not believe that there has been a paradigm shift in affluent  consumer behavior as a result of the financial downturn,” says David Thompson, managing director, affluent market at Phoenix Marketing International. “Unlike the Great Depression, this one was far too short and the markets have partially recovered too quickly to cause a seismic change in behavior. Most mainstream investors have weathered the storm quite well, overall.”

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By Cotten Timberlake

Oct. 16 (Bloomberg) — Spending in the U.S. on luxury goods and services spurted 29 percent in the third quarter from the previous three months, as consumers with the highest incomes unleashed pent-up demand, according to Unity Marketing.

Spending among 1,067 consumers with average annual income of $228,800 rose to $18,826 each in the three months ended in September from $14,554 a quarter earlier, the Stevens, Pennsylvania-based luxury-market research firm said today. Shoppers cut spending by 3.2 percent in the second quarter and spent $13,429 in the third quarter of 2008.

The increase was driven by consumers with the highest income levels, starting at $250,000 a year, said Pam Danziger, Unity’s Marketing’s president. Spending was strongest in the home, travel and dining segments, she said. The wealthy curbed purchasing earlier this year because of Wall Street job cuts, lower home values and volatile financial markets.

“No question that this quarter’s spending increase is good news for luxury marketers,” Danziger said in a telephone interview today. “Many affluent consumers returned after sitting on the sidelines for a year. However, the richest are few in number, 2.5 million households, so competition will be fierce to win their attention.”

MasterCard Report

U.S. luxury sales rose 3.4 percent to $891 million in September from a year earlier, the first such gain since August 2008, according to figures provided today by credit-card company MasterCard in its SpendingPulse report. Last month, those sales fell 13 percent from the previous year.

The luxury category covers apparel, leather goods and department-store sales at the highest 10 percent of prices. SpendingPulse measures retail sales across all payment forms, including cash and checks.

United Marketing said purchases increased in all but three of the 22 product and service categories it tracks.

The highest-income group spent an average of $43,111 in the latest quarter and the lowest-income group tracked, with earnings of $100,000 to $149,999, spent $10,423. The three categories that didn’t gain were fashion accessories, fashion apparel and art, Danziger said.

Gains in confidence among luxury consumers, meanwhile, slowed, Unity Marketing said.

The researcher’s luxury confidence index rose 1.6 points to 75.9, after jumping 18.6 points to 74.3 in the previous quarter. That index peaked at 113.2 at the end of March 2006. Its low was 40.3 in September 2008. It started at 100 in January 2004.

The findings were based on a survey conducted among adults aged 24 to 70 with income of at least $100,000 from Oct. 2 to Oct. 7. Unity Marketing does not calculate a margin of error. It plans to publish the survey results Oct. 19.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHx9ytuwJJ6Y#

FT.com
By Scheherazade Daneshkhu in Paris
Published: October 19 2009 12:04

The luxury goods industry will return to growth next year while the decline in 2009 will be less severe than expected thanks to strong sales in Asia, especially China, according to a study published on Monday.

Bain & Co, the consultancy, expects luxury goods sales this year to fall 8 per cent – instead of the 10 per cent it forecast in April – and grow 1 per cent next year to €153bn ($228bn).

Claudia D’Arpizio, Milan-based Bain & Co partner, said the bottom had been reached: “Luxury goods markets are stabilising. We are seeing less discounting and markdowns and more signs of increasing consumer confidence. Growth will be timid in 2010 but it’s movement in the right direction.”

The decline this year in the mature markets of Europe and North America has been mitigated by growth in China and other emerging markets, notably South Korea.

The study mirrors cautious optimism on the part of some of the big luxury goods companies. Last week, Burberry, the British group best known for its red, black, white and tan check, reported better-than-expected second-quarter sales.

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In-Depth Look – Asia’s Luxury Consumer

Bloomberg
Oct. 09, 2009. 10:46 AM EST

Interview and discussions with Milton Pedraza of the Luxury Institute. He talks about the luxury retail market. Louis Vuitton, Ferragamo and Ermenegildo Zegna to Mongolia.