The current downturn has not spared the wealthy or their taste for luxury
Oct 25, 2009
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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