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Luxury Recession? Spending Trends Among Affluent Consumers Indicate Bright Spots Amidst the Gloom

Presented by Pam Danziger
President of Unity Marketing
Par Excellence Magazine Advisory Board Member

The financial news is grim, but there are opportunities for companies that keep their eye on the prize -- the newly cautious and conservative luxury consumer

Stevens, PA March 17, 2008 – Every passing day seems to bring more dismal news on the economic front. Whether the economy is actually in a recession or simply slowed down, most people agree 2008 will be a challenging year for marketers and retailers across the board. This holds for many luxury brands as well, based upon research among affluent consumers and their trends in spending conducted by Unity Marketing.

Pam Danziger, president of Unity Marketing and author of " Let Them Eat Cake: Marketing Luxury to the Masses – as well as the Classes", says, "Luxury companies will face a new, more competitive market this year, one unlike any they have confronted in the past. The conventional wisdom holds that the affluent market is unaffected by the economic ups and downs that hurt the middle-income consumer. But today the affluent consumer market is far more diverse and stratified than it historically ever has been. That means luxury marketers need to understand the segments within their target market and develop marketing strategies that clearly differentiate the priorities and passions of these different types of luxury consumers."

Danziger continues, "Luxury marketers and retailers, now more than ever, need to stay focused on their customers in order to anticipate the inevitable shifts and changes in the luxury market that are brewing. Gains will come to marketers willing to make adjustments to strategy based upon the new realities of a more cautious, conservative luxury consumer mindset. A newly cautious and careful affluent consumer who is diligent to find value is in the lead and luxury marketers must be willing to follow."

There are pockets of opportunity in the current luxury market

While the financial news is mostly doom-and-gloom, Danziger says there are bright spots for savvy luxury marketers who are willing to look for the silver linings in the clouds of the economic storm.

Luxury Consumers Will Focus on Domestic Travel Opportunities versus Traveling Overseas (with Exception of Cruises)

With the dollar losing ground against foreign currencies, American luxury consumers will keep their travel dollars at home this year. This trend away from foreign travel started to gain traction in the third quarter 2007, grew even stronger in the fourth quarter and is expected to continue throughout 2008.
While foreign travel declined at the close of 2007, domestic travel spiked. Some 89 percent of luxury consumers reported some luxury travel stateside in the fourth quarter 2007, the highest level seen throughout 2007 and 2006.
Luxury cruises will be one notable exception to the trend toward less foreign travel. More luxury consumers will look to the cruise lines as their primary foreign travel opportunity in 2008, owing to the fact that cruise experiences are paid in advance, and thus are a hedge against further inflation and continued decline in the dollar. They also are paid in U.S. currency so people won't feel the pain at the exchange counter.

Luxury Consumers Will Opportunistically Buy Imported and Higher-Priced Luxury Goods

Throughout 2008 Danziger predicts there will be more opportunistic buying of imported and higher-priced luxury goods, especially among the most highly-affluent consumers (household incomes $150,000 and above). They will be encouraged to buy premium imported luxury brands now rather than wait, in order to get out in front of inflationary trends. Luxury retailers, especially the most upscale boutiques, may see sales rise at the start of each selling season this year as luxury consumers decide to pick up the latest fashions, rather than wait till they get even more expensive.

The jewelry sector could benefit from similar opportunistic purchases. With the cost of precious metals rising even faster than the value of the dollar is falling, luxury consumers will be encouraged to make jewelry purchases sooner, rather than later to avoid further inflation. Jewelry is also unique among luxury goods because it offers the customer perceived inherent value.

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