Stevens, PA—Even though you couldn’t prove it by lavish gowns and jewelry at the Met Museum’s Costume Institute Benefit on Monday night, there’s actually a new wave of austerity happening among the most affluent consumers.
In its April edition of the Luxury Consumption Index (LCI), Unity Marketing, a research firm, reported today that consumer confidence among the nation’s top 20% of households has dropped to levels “not seen since the depths of the recession in late 2008 to early 2009.”
The latest survey forecasting spending trends among affluent shoppers shows that affluent consumers are more likely to save and invest any financial gains they accumulate over the next 12 months, rather than spend on luxury or high-end goods and services.
“The decline in the LCI in April is rooted in a move toward the middle in affluents’ attitudes toward their financial status,” says Pam Danziger, Unity’s president and lead researcher for the Affluent Consumer Tracking Study (ACTS). “That is, rather than feeling more positive, they see their financial status neither rising nor falling in the immediate future. As a result, they are in a holding pattern with 61% of the more than 1,400 affluent consumers surveyed saying they expect their level of spending on luxury goods and services to remain the same over the next 12 months.”
Thus, the balance of 2014 may prove challenging for brands and companies that target the affluent “heavy-lifting shoppers,” who make up only 20% of U.S. households, but account for more than 40% of total consumer spending.
Permanently Altered Marketplace?
“That means we must position our brands, our stores and our experiences as an ‘investment’ in the customers’ quality of life, which will mean greater personal satisfaction and comfort, as opposed to an expense that leaves the customer cash-poor and in a weakened financial position,” Danziger says. “So marketers need to focus on how the brand, the store, the services and experiences delivers a return on the customers’ investment.”
Despite what seem to be headwinds for luxury marketers, the survey also reveals some possible opportunities.
“While the new survey results aren’t revealing a doom-and-gloom scenario yet, it does mark a mood toward austerity where affluent consumers will need extra coaxing in order to indulge in luxury spending,” Danziger says. “That means when it comes to shopping, the need to find a specific item, rather than a desire to shop for recreation or inspiration, ranked as the top reason why affluents went shopping for high-end goods during the first quarter.”
That austerity also resulted in Internet shopping (76%) and visits to discount department stores or their websites (68%) outranking any other type of retail destination, as measured by both usage and individual shopping occurrences (both average 5.4 shopping occurrences during the three-month study period).
“It appears that a significant portion of the marketplace believes that fiscal conditions—which are the chief drivers behind consumer confidence—are neither improving nor declining,” adds Tom Bodenberg, consumer economist at Unity. “These conditions translate into reduced marketplace demand, especially for luxury and discretionary spending. So, we see no upticks, and a decline, as the market is not as optimistic as it was one quarter ago. But, I think this decline may be more due to the influx of a new generation with needs that might not be entirely confirmed, let alone expressed, by luxury.”
The effects of the Great Recession have been strongly felt for at least seven years, Bodenberg notes. The tougher job market, lowered expectations and economic output may have permanently altered the marketplace “for the material expression of value, worth, identity, aspiration. It will make marketing even more of a challenge.”
About the Survey
The latest ACTS survey was conducted among 1,436 affluent consumers from April 7 to 15. The average income of those surveyed was $269, 1000 and average age of 47.7 years, who shopped for one or more luxury or high-end goods and services during the first quarter 2014. The survey measures two tiers of affluents: the ultra-affluents (HHI $250,000 and above) who are the “darlings” of luxury marketers and the HENRYs (High Earners Not Rich Yet) who are the mass affluent segment and increasingly important to luxury marketers who need to develop strategies to convert some of their discretionary spending to true heritage luxury brands. www.unitymarketingonline.com