Opposite Bain & Company’s predictions that affluent U.S. consumers would return to spending on luxury goods, Unity Marketing’s research sees affluent consumers spending less on luxury items for the holiday season.
The Luxury Consumption Index (LCI) for October reports that affluent consumer confidence decreased 6.2 points to 72.1 points.
“Luxury consumers started 2010 with a feeling of optimism that the worst of the economic turmoil was over.” Pam Danziger, president of Unity Marketing, explains the root of wavering confidence on the economy from affluent consumers. “But through the course of the year, reality hasn’t lived up to those expectations, so we have seen a retreat of the LCI throughout that year.
"Lower levels of affluent consumer confidence are playing out in terms of reduced of spending on luxuries. In the third quarter, affluent consumers spent 1.4 percent less on luxuries than they did in the second quarter, with declines seen in expenditures in most of the 22 categories of luxury goods and services included in the survey."
Danziger goes on to explain the difference between the conclusions between Bain and Unity Marketing, “The word from Bain is that the luxury goods sector's 'recovery has been faster than expected.' I disagree. The affluent consumers surveyed show a very reserved and cautious attitude about future luxury spending. Nearly half (49 percent) expect to spend the same on luxury in the next twelve months and about one-fourth (24 percent) say they will spend less.”
One positive outlook for luxury marketers is that luxury consumers have spent 33% more this year as opposed to 2009. However, another tough quarter lies ahead as U.S. consumers from the affluent classes continue to seek discounts and sales.
Unity Marketing found that affluents show a pattern towards purchasing personal electronics for the holidays: "More affluents will turn to gift selections from among these practical, yet essential high-tech tools, including laptop computers, GPS, cell phones, MP3 players and eBook readers. This will be good news for marketers like Apple, Amazon, Best Buy and Radio Shack."
Other purchasing patterns this quarter include a demand for something new that drove more luxury consumers to the store. Increased purchases in luxury goods and services compared to the second quarter include: luxury clothing and apparel, fine dining, wine, entertainment and travel.
Danziger explains that Unity Marketing’s research treats spending and purchasing as two independent factors, “The two key metrics that the luxury tracking survey measures -- spending and purchase incidence -- are totally independent variables. Purchase incidence is the share of affluent consumers who made a purchase in one of the 22 product and service categories tracked. Spending is the average amount buyers actually spent making purchases. Luxury goods and service marketers need to focus on both metrics to increase sales and profits; that is, they need to both attract more affluent shoppers and get those affluent shoppers to spend more.
“What the data says about the third quarter is that in these five categories marketers attracted a greater share of customers, but they were not able to convert them into higher-spending customers.”
The chief consumer economist for Unity Marketing, Tom Bodenberg, further drives the point of their research results for affluent consumer spending for coming holidays, “After two quarters of stagnation, the index now shows a decline. This portends a holiday period where retailers need to be even more nimble, need to control the supply chain, and in the case of experiences, limit supply more than originally planned. Fifteen months ago I mentioned the downward spiral dating from early 2008 had bottomed out. The subsequent period did show an increase, but it has reached a plateau and is now declining again.”
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