Affluents feel more positive about financial situations

by WOHe

Stevens, PA January 28, 2010 — Unity Marketing’s exclusive Luxury Tracking Study results are in for the fourth quarter 2009 and they show a marked improvement in consumer sentiment among affluent consumers, defined as those at the top 20 percent of household income. The survey tracking luxury consumption was conducted from January 8-14, 2010 among 1,614 affluent consumers (avg. income $239.3K, 45.9 years, 41 percent male/59 percent female.

In the beginning of 2010 the Luxury Consumption Index (LCI) which measures consumer confidence in the ranks of the affluent stands at about the same level it was in September 2007, just as the recession began to drag the index down. Throughout 2009 the LCI has steadily gained points. Overall the index has recovered about 80 percent of the points it lost since it bottomed out in September 2008.

Commenting on the results of the latest survey of affluent consumer confidence and their luxury consumption behavior, Pam Danziger, president of Unity Marketing and lead researcher in the luxury tracking study, says, “The latest survey shows affluents continue to be pessimistic about the overall economy. For example only 26 percent of affluents feel the country as a whole is better off now than three months ago. Further nearly 80 percent believe the country remains mired in the recession. The majority of affluents we polled think the recession won’t officially end until 2011.

“But while affluents continue to be cautious about the world at large, they are more optimistic about their own financial situation. The share of affluents who feel their financial situation is better now than three months ago rose 5 percentage points from the third quarter. Because they feel financially more stable, they were empowered to spend more money on luxury in the fourth quarter,” Danziger says.

For example, affluents spent about 50 percent more on luxury clothing and apparel, fashion accessories, travel and spa, beauty and massage services in the fourth quarter as compared to third quarter. These are categories that have dragged in terms of spending throughout the year. Overall affluents spent 7.9 percent more on luxury from third to fourth quarter, following a 29.4 percent increase from second to third quarter.

In the luxury market recovery, ultra-affluents and young affluents will drive growth
Luxury marketers looking to take advantage of the rising tide of affluent consumer sentiment need look no further than two key segments: the Ultra-affluents (those with income $250,000 and above) and the young affluents (aged 40 and under), Danziger advises. “The future of the luxury market is going to be split along demographic lines. First is income. Ultra-affluents who make up only 2 percent of the entire economy increased their spending by 40 percent from the third to the fourth quarter. Ultra-affluents represent a very small number of households, but their power as consumers is phenomenal. As a group they spent over 4.5 times more on luxury than lower-income affluents in the fourth quarter.

“The second most important demographic that will define the future of the luxury market is age. Young affluents (those 40 years and younger) outspent their elders by nearly 2.5 times in the fourth quarter,” Danziger continues. “Given their youth, young affluents are in an acquisitive lifestage where they have a strong appetite for luxury brands and consumer goods. The more mature Baby Boomers are reaching a new lifestage where their focus is on life experiences, rather than acquiring more stuff. As the recovery progresses, the Baby Boomers are unlikely to return to their previous levels of spending.”

Demographics also highlight the key challenges for luxury marketers in the recovery ahead. “Ultra-affluents spend huge amounts of money yet they remain a very small niche market, representing only 2.5 million households as compared with 21.5 lower-income affluents. Young affluents also make up a significantly smaller share of affluent households, representing less than 40 percent of all affluent households compared with 60 percent of the more mature households,” Danziger says.

Luxury brands need to find new platforms to help them connect with the two most powerful demographic segments for the future
Danziger advises luxury marketers for the future, “Marketers therefore need to find compelling platforms to connect with these two influential demographic segments that will drive their sales growth in the future. As we look to the future, more of the ultra-affluents and young affluents are choosing to connect with luxury brands through the Internet, so the brands must be there with compelling content and services that will entice these high-spending consumers.

“Brands also must be vigilant that they are delivering consistent high quality and authentic value in the products that they sell for their heritage is another vital component of the luxury platform. In addition, a platform based upon exceptional personal service is critical to these two types of consumers, both when interacting with brands in the store and over the Internet.

“Every touch point with the consumer becomes an essential element in the platform that brands can use to build customer relationships that will continue after the recession,” Danziger concludes.

For more information about the Luxury Consumption Index (LCI) and the results of Unity Marketing’s latest survey of affluent consumer spending, call Pam Danziger at 717-336-1600. You can also view the full Luxury Tracking Report.

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