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Luxury Consumer Spending Increases in Third Quarter (posted 11/16/09)

November 16, 2009
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According to Unity Marketing's latest survey, affluent consumers spent more in the third quarter of 2009 than they did in the second quarter. However, optimism should be tempered with realism, as a deeper look at the data discloses a difference in attitude toward luxury between ultra-affluent consumers with the highest household incomes and affluents with a less robust income level. The findings are further confirmation that the coming post-recession luxury market will be far different from the one that came before.

Changes in consumer behavior follow changes in attitude, according to most psychologists that study consumer behavior. In the third quarter of 2009, that proved true among luxury consumers. Last quarter, affluent consumers showed the largest historic increase in consumer confidence as measured in Unity Marketing's Luxury Consumption Index (LCI). In this quarter, they followed suit by increasing their spending on luxury at near historic levels.

Overall spending on luxury goods and services rose 29.4% from the second to the third quarter of 2009. In all but three of the 22 product and service categories included in Unity Marketing’s latest Luxury Tracking survey of 1067 affluent consumers (average income of $228,800), they spent more from quarter to quarter.

Pam Danziger, president of Unity Marketing and lead researcher in the luxury tracking study, warns luxury marketers that this quarter’s uptick might simply be a sign that consumers were releasing pent-up demand and that such strong spending on luxury may not carry over to subsequent quarters. “No question that this quarter’s increase in spending on luxury is good news for luxury marketers,” said Danziger. “Many affluent consumers released pent-up demand in the third quarter, particularly in the area of home luxury goods and experiential luxuries, like travel and dining.

“In digging deeper into the data, the results show that the sharp rise in luxury spending was driven primarily by increased spending and participation in the luxury market by those at the highest income levels ($250,000 and above). Affluent consumers at the lowest income level ($100,000-$149,999) were reluctant to trade up to the luxury level. So this quarter’s luxury tracking study was heavily weighted toward those in the upper income levels.”

Further moderating results in this quarter’s luxury tracking is a modest gain in overall luxury consumer confidence, as measured by Unity Marketing’s LCI. For the third quarter 2009, the LCI only rose 1.6 points. “The Luxury Consumption Index for third quarter 2009 was 75.9, which is a very slight increase from second quarter’s index of 74.3, thus ending a three-quarters-long pattern of substantial improvement,” said Tom Bodenberg, Unity Marketing’s chief economist. “Stated another way, the index has held its half-way climb back from its precipitous fall in the third quarter last year. 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.”

For more information, call (717) 336-1600 or visit www.unitymarketingonline.com.

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