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Study: Ultra-affluents return to luxury spending

By Teresa Novellino
October 20, 2009

Stevens, Pa.-In a sign that the very rich are getting tired of watching their wallets, new research from Unity Marketing suggests that pent-up demand prompted very affluent consumers to spend more on luxuries, including jewelry, in the third quarter of 2009 than they did in the second quarter.

But the research also notes that affluent Americans at less robust income levels continue to hold back.

"Marketers' optimism should be tempered with realism, as a deeper look at the data discloses a dramatic difference in attitude toward luxury between ultra-affluent consumers with the highest household incomes and affluents with a less robust income level," Unity Marketing said in a release issued Monday. "The findings are further confirmation that the coming post-recession luxury market will be far different from the one that came before."

Unity Marketing's latest Luxury Tracking survey included results from 1,067 affluent consumers whose average annual income is $228,800.

The results show that the sharp rise in luxury spending was mostly driven by increased spending and participation in the luxury market by those at the highest-income levels ($250,000 and above in annual incomes), while affluent consumers at the lowest-income levels (ranging from $100,000 to $149,999) were reluctant to trade up to the luxury level.

"So jewelry marketers and retailers have to really know how to sell to the
ultra-affluents and attract them into the store," Pam Danziger, president of Unity Marketing and lead researcher in the luxury tracking study, told National Jeweler.  "But there will be really heavy competition for these few truly wealthy consumers."

Overall spending on luxury goods and services rose 29.4 percent from the second quarter of 2009 to the third quarter of 2009, according to the study.  In all but three of the 22 product and service categories included in the survey, the respondents spent more from quarter to quarter. The areas of home luxury goods and experiential luxuries, including travel and dining, fared particularly well, said Danziger.

As for jewelry, affluent consumer spending rose about 9.4 percent from the second quarter to the third quarter, which is positive but far below the overall increase in spending of 29.4 percent, Danziger said.

The study also found a modest gain in overall luxury consumer confidence as measured by Unity Marketing's exclusive Luxury Consumption Index (LCI).  For the third quarter 2009, the LCI rose 1.6 points to 75.9 points, a slight index increase from the second-quarter LCI, which was 74.3.  

"Stated another way, the index has held its half-way climb back from its precipitous fall in the third quarter last year," said Tom Bodenberg, Unity Marketing's chief economist in the release.  "In the latest data we find that the downward spiral in the LCI that began in mid-2007 has bottomed out, and there are signs of a long, slow, but steady haul upward."

Out of a total 117 million  U.S. households, there are 24 million "affluent" U.S. households whose income levels fall in the top 20 percent, according to the study's demographics. Ultra-affluents, in the top 2 percent of the income ranges, make up only 2.5 percent of U.S. households.
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