The results from Unity Marketing’s exclusive survey of U.S. luxury consumer confidence and spending challenge the conclusion that the luxury retail sector is really on the mend.
Luxury consumer confidence, as measured in the Luxury Consumption Index (LCI), took a deep dive in January to levels not seen since the Great Recession, said Pam Danziger, the president of Unity Marketing.
Corresponding with the sharp fall in the LCI, was a decline of nearly 15 percent in the average amount spent on luxury in the fourth quarter of 2011. Unity Marketing found from its 1,333 affluent luxury consumers with an average income of $286,300.
“The LCI has been on a topsy-turvy course since 2010, one quarter it goes up, the next down. But looking over the course of the last two years, the LCI lost more than it gained. At the start of 2012 the percentage of luxury consumers expressing a definite willingness to spend more on luxury (one of the major components of the index) was down,” Danziger said.
On the bleak outlook from luxury consumers, Tom Bodenberg, Unity Marketing’s consumer economist asked, “Does this mean that these luxury consumers will not buy? No. It is a matter that they are non-committal. Why are they non-committal? Here appears to be a trend of non-conspicuous consumption– perhaps as fallout from the ‘Occupy’ movement, among North American luxury consumers.”
Bodenberg predicted, “The buying behavior will shift to an almost ‘hidden’ form of consumption of luxury goods– where ostentation is minimized. The actionable demand for luxury goods and services, on the whole, is flat and still substantially below the levels of two to three years ago. What is interesting is that this apparently ‘recession-proof’ segment of the marketplace has also been greatly affected by the downturn. Media reports of a ‘renaissance’ in the luxury market appears to be limited to an extreme top tier of consumers, a small number compared with the bulk of the luxury marketplace potential.”
Translating the findings from the LCI into steps luxury marketers can take to encourage consumers to commit to their brands, Danziger said, today’s affluent customer is keen on finding value when they shop. They look to maximize their investment in spending and they expect the goods and services they buy to deliver the maximum return.
”Luxury marketers must make sure their brands give these customers a high yield when they buy. Marketers need to recognize these customers are thinking more like investors when shopping for high-end goods than consumers. If your brand doesn’t deliver a suitable return on investment, they’ll turn to competitive brands that will give them high quality without such an extravagant investment,” Danziger explained.
“Take Coach, for example, ranked this quarter as the top fashion boutique destination among luxury consumers, as well as the number one fashion accessories brand. Coach offers its customers high-quality, long lasting and still luxurious handbags but with an average price around $300, making the bags expensive for the masses, but affordable for the ‘classes,'” Danziger concludes.