Luxury Forecast: A Drought Ahead?

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

Pam Danziger's new book on the changing luxury marketplace

New York—While some luxury brands have been trumpeting a rebound in the luxury market, one leading expert says it may still be too early to toot horns. Instead, the luxury spending may not return to pre-Great Recession levels until 2019, or even 2020.

Speaking to about 120 marketing executives at a presentation to the Luxury Marketing Council, Pamela N. Danziger, president of the Stevens, Pennsylvania-based Unity Marketing, said Tuesday that the recession–which caused the first major drop in luxury spending–was a “wake up call” to luxury marketers.

In fact, Danziger says, the recession revealed some underlying changes in the “heart and soul” of affluent consumers that might have taken years to uncover. “The luxury market won’t see a return to high spending levels until 2019, when the Millennials (the generation born between 1982 to 2000) reach the age when they will become more affluent.”

Danziger, whose company reports on qualitative and quantitative research on affluent consumers’ preferences, shopping habits and attitudes, says several fundamental changes have occurred in demographics, psychology and the perception of luxury which happen to coincide with recent economic turmoil.

Noting that there’s a “window of affluence” among consumers ages 35 to 54 who have incomes above $100,000, Danziger explains that the next decade there will be a dearth of these affluent consumers as the Baby Boomers mature and reduce their spending and before the Millennials reach a point in their careers when they are affluent enough to spend on luxurygoods. “Generation X is a hiccup between two baby boom generations.”

The resulting gap is what Danziger calls the “luxury drought.” Even if the “ultra affluents”–the wealthiest 5%–increase spending, it still won’t make up for the lack of consumers affluent enough to maintain sales.

Spending Mentality: More Consumer Reports than Vogue

Complicating matters is the fact that affluent consumers are still in flux about discretionary spending. Danziger says that her firm’s Luxury Consumer Index, a quarterly review of purchasing and intentions, found that 80% of affluent consumers are still changing their minds about spending and more than 70% says they don’t see a quick end to the recession.

Danziger, however, says that affluent consumers have turned more cautious in general and are tempered in their wants. “They have the feeling that it’s better to have less. They view themselves as smarter if they can get by with less.” In fact, Danziger believes many luxury brands “overdo status” in importance. “The emphasis is more on quality and performance. It’s more ‘Consumer Reports’ than ‘Vogue’” mentality. “There’s a new math: they aren’t going spend 10 times for something that is only three times better.”

Danziger also took issue a recent report by Bain and Co. which stated that the worldwide luxury market will rebound 10% this year, 4 to 5% next year.  “The word from Bain is that the luxury goods sector’s ‘recovery has been faster than expected.’  I disagree. The affluent consumers we surveyed show a very reserved and cautious attitude about future luxury spending. About 49% expect to spend the same on luxury in the next twelve months and about 24% percent say they will spend less.

“While luxury consumer confidence is much higher now than it was at the close of 2008, Unity Marketing’s measure of the pulse of the affluent consumer market still signals caution for marketers. Now is not the time to sit back and breathe a sigh of relief.  We still have a long way to go before the affluent consumers feel confident enough to spend as freely as they did in 2006 and 2007.”

Instead, Danziger says luxury marketers need to focus on the “whys” of a buy: “what value is the product to me? My family? What experience do I get from it? What story does it tell?” Successful luxurygoods marketers are better off offering good/better/best levels of pricing and quality in their products.

Danziger’s latest book, Putting the Luxe Back in Luxury, to be scheduled to be published by Paramount Market Publishing later this year.

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