Study: Nation's richest continue luxury cutbacks

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Study: Nation's richest continue luxury cutbacks

Affluent show 'new frugality'

January 27, 2009

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Stevens, Pa.--Once considered immune to the economic woes that plague middle- and lower-income consumers, the affluent are now taking a direct hit from the recession and thus changing their lifestyles to conserve cash, according to the latest research from Unity Marketing.

The study, which polled from Jan. 6-12 1,166 affluent male and female consumers with an average income of $199,000 and an average age of 45.6 years, found they spent 6.4 percent less on luxuries in the fourth quarter of 2008, compared with the third quarter.

The luxury market segments showing the steepest declines in consumer spending were luxury fashion accessories, kitchenware, electronics and upscale home furnishings.

"Unity Marketing's latest survey of luxury consumer purchasing continues to measure weakness in affluent consumer confidence that is causing even the richest Americans to hold off on discretionary purchases," Unity Marketing President Pam Danziger said in a media release. "Specific changes they are making to their lifestyle according to our latest survey are reducing the times they dine out and shopping less frequently. Affluent shoppers are showing a new frugality that may well become a habit once this recession ends."

The Luxury Consumption Index (LCI), Unity Marketing's exclusive measure of affluent consumer confidence, currently stands at 41.7 points, close to its historic low of 40.3 points reached at the close of the third quarter of 2008.

"The slight improvement measured in the LCI at the end of the fourth quarter of 2008 measures a small uptick in affluents' feelings about their current financial situation and their expectations for the country in the next 12 months," Danziger said. "This may well be a result of the Obama inauguration and hopefulness that the new administration will be effective in tackling the problems in the economy."

On the other hand, Danziger notes, while the affluent feel slightly more confident about the economy at large and their personal financial situation, they continue to lessen their expectations of future luxury spending.

Further, the affluent also expect to save/invest more in 2009, so the extra cash they once would have spent will mostly likely be saved in the next 12 months.

"By these measures, we feel the luxury sector of the economy will continue to falter throughout 2009 and be slower to recover than the mid-market as the recession eases," Danziger said.

According to Unity Marketing Chief Consumer Economist Thomas Bodenberg, the downward spiral of the LCI has leveled out in the past several quarters. At the same time, however, the collapse of the credit markets and the inaccessibility of easy credit, the allocation of spending to essentials such as food and healthcare, and the rampant restructuring in the financial sector with huge losses of high-paying jobs and Christmas bonuses--which are the "heart of discretionary purchasing for luxury goods and services"--has continued to moderate the affluent consumer's outlook.

To give luxury goods marketers insights on the effects of the current economic crisis on affluent consumers, Danziger will host a Webinar on Feb. 12 fro 12:00 p.m. to about 12:45 p.m. To register, visit Unity Marketing's Web site, UnityMarketingOnline.com.

"What you will hear in this Webcast is a story of change in the luxury market," Danziger said. "It is marked by three major trends that are going to result in lasting changes in the luxury market. These trends are affecting economics, demographics and psychographics, or their attitudes and feelings. Not one of these factors alone could fundamentally change the trajectory of the luxury market in the future. But taken together, we have reached a tipping point where the luxury market that went into this period of economic instability is going to be very different from the luxury market that comes out of this time."

Pamela N. Danziger is president of Unity Marketing and an internationally recognized expert specializing in consumer insights, especially for marketers and retailers that sell luxury goods and experiences such as Swarovski and the World Gold Council.

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