While several recent consumer holiday spending reports indicate that the general population is concerned about spending and will be cautious with their spending the rest of the year, so, too, are the “heavy lifters,” the top 20% of consumers.
A pessimistic mood has descended upon the high-spending affluent consumer segment, reports Unity Marketing, a consumer research firm in its new survey conducted in early October among a sample of 1,208 affluent consumers (avg. income $267,100).
Weak Turnout for Holiday?
“While the survey was conducted Oct. 3 to10, during the 16-day government shutdown, the affluents, who represent the economy’s heavy lifters in terms of consumer spending, see continued uncertainty ahead in terms of governmental policy and its impact on business. That uncertainty is measured in a sharp drop in the Luxury Consumption Index (LCI). The latest survey results predict a weak turnout for the holiday shopping season this fourth quarter,” said Pam Danziger, president of Unity Marketing and lead researcher on the Luxury Tracking study.
The LCI found several key indicators of confidence that were at levels not seen since the depth of the recession in 2008/2009.
Key findings from the survey predict a challenging holiday shopping season:
●Affluents’ expectations on future luxury spending took a dramatic downward turn – In a question about expectations for future luxury spending over the next 12 months, only 20% of those surveyed plan to spend more, down from 31% a year ago.
●28% expect to spend less, up from 18% last year.
●Affluents are increasingly pessimistic about their financial status over the next 12 months, too. When asked about shifts in their financial status over the next 12 months, only 40% said their financial status would improve, down from 52% during the same period last year.
“Given affluents’ concerns about their financial status, retailers will have to pull out all the stops in terms of promotions and discounting this season to attract these shoppers, as the most important feature these affluents say they will look for when choosing a gift is to find it on sale or at a deep discount,” Danziger said.
Some of the affluent consumers’ pessimism may have to do with the overall economy.
Half of the surveyed said they felt the economy overall was headed in the wrong direction. This compares with only 24% who felt the same way a year ago.
As a result, far more affluents plan to cut back on gift spending this holiday as compared with last. About 25% plan to spend less this year on holiday gifts as compared with last, while only 18% expect to spend more. The average amount affluents expect to spend on holiday gifts is $1,730.
High-End Spending Drops 26% in Q3
“Affluents generally are very optimistic about their ability to weather financial ups and downs, but in the latest survey, they express an uncharacteristic pessimism,” Danziger said.
Providing perspective on the LCI, Tom Bodenberg, Unity Marketing’s chief consumer economist, added: “The reaction is not entirely due to Washington per se. Rather, it is due to a ripple effect—uncertainty about both unbridled Washington spending and the inability to generate funding to pay for such spending—which has transformed equity markets. The resulting drop in consumer confidence—which was actually improving as recently as late summer—is affecting demand across all income segments. Bear in mind the resolution of the debt ceiling issue is only postponed—our political system has been transformed into ‘Groundhog Day.’ Cloudy weather in D.C. portends a cloudy market for luxury goods and experiences.”
Coinciding with depressed affluent consumer confidence, high-end spending recorded during the third quarter was down some 26% from second quarter, and off nearly 40% from same period last year. Even LVMH, the world’s largest luxurygoods company, reported last week a slowdown in sales.
The only bright spots that measured a pickup in spending were: home electronics, especially high-end television sets and home computer systems; major appliances, bath fixtures and building products, owing to affluents investment in home improvements; and
beauty products, as the ‘lipstick effect’ kicks in where financially-challenged consumers indulge in high-end, but still relatively affordable, lipsticks and other cosmetics for an immediate lift, while foregoing more expensive luxury indulgences.