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For Luxury Marketers, Manufacturers, Retailers, Advertising Agencies, Investors and the Press...
Luxury Consumers' Confidence Goes into a Tailspin as They Feel the Pain of the Financial Crisis
Presented by Pam Danziger
President of Unity Marketing
Par Excellence Magazine Advisory Board Member
January 25, 2008 Stevens, PA -- Conventional wisdom holds that affluent consumers are immune to economic downturns. But the current financial crisis is proving the conventional wisdom wrong. Luxury consumer confidence at the beginning of 2008 has never been lower, dropping 23.8 points from the third quarter to 63.6 points in the fourth quarter 2007, as measured by Unity Marketing's Luxury Consumption Index.
Further, as affluent consumers' confidence dropped so did their spending on luxury goods and services, down more than 20 percent from the first half of 2007 to the second.
"Affluent consumers, just like everybody else, feel the pain this time around," says Pam Danziger, president of Unity Marketing and author of Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience, commenting on Unity Marketing's most recent survey of 1,281 luxury consumers (average income $155,700 and age 46.6 years) about their purchases and spending on luxuries in the fourth quarter.
"Since Unity Marketing began its quarterly tracking study in January 2004, luxury consumers have never expressed such a dismal view of their financial status, their feelings about the direction of the country as a whole and their plans for future spending," Danziger continues.
As a result, luxury consumers are holding back on spending in the purely discretionary category of luxury. Their spending on luxuries in the second half of 2007 dropped over 20 percent, from an average of $29,307 to $24,301 in the third and fourth quarter.
Danziger says, "Now the pain is starting to spread to the luxury retailers and marketers worldwide, many of which are reporting weaker than expected sales in the U.S. market in the vital fourth quarter period."
"The prognosis is not good in the short term, as witnessed by the concerns incorporated into the Luxury Consumption Index," says Tom Bodenberg, Unity Marketing's economic forecaster.
"The index was developed to both measure the level of luxury consumer confidence and to predict trends in the direction of the luxury market overall. A number of key factors that were in full swing last summer accelerated in the fall to erode luxury consumer confidence, and thus erode spending. The light, if any, at the end of the tunnel, could be the recent moves by the Federal Reserve to lower interest rates. Should inflation occur due to the relaxing of the money supply, consumers may look at certain luxury items, like jewelry, as 'investments,' or hedges against inflation." Bodenberg explains.
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