Unity Marketing's Latest Luxury Tracking Survey Shows that Luxury Consumers Took a Cautious Turn in the Third Quarter
Attend a webinar August 21 to learn the latest about the luxury market from Unity Marketing's Luxury Tracking Survey
Stevens, PA August 3, 2012 -- Recent weak corporate results from leading U.S. luxury marketers – Ralph Lauren (RL) , Coach (COH) , Tiffany (TIF) and American Express (AXP) --have pundits warning the luxury market is headed for a fall. Here’s why they may be right:
In the third quarter 2012 luxury consumers grew increasingly nervous about their financial status, causing Unity Marketing's exclusive Luxury Consumption Index (LCI) to plummet. The LCI measures affluent consumer confidence and has proven a reliable leading economic indicator not just of the luxury consumer market, but the overall U.S. economy. Along with the drop in the LCI, luxury consumers cut back their level of luxury spending during the second quarter (April-June) by 8.2 percent from first quarter. The decline in spending was even more pronounced comparing year-over-year, down 26.9 percent.
Unity Marketing will host a 30-minute webinar at noon August 21 e.d.t. to review the results of the latest Luxury Tracking Survey and what the Luxury Consumption Index projects for the next six months. Click this link to register today
“The up and down trajectory of the LCI measures continued uncertainty among affluent consumers who make up the heavy lifters in the overall consumer economy,” says Pam Danziger, president of Unity Marketing and author of the book Putting the Luxe Back in Luxury: How new consumer values are redefining the way we market luxury. “Looking back at over the past three years, we find that the luxury consumers, particularly the ultra-affluents, unleashed pent up demand for luxury indulgences during 2010, but since then affluent confidence, and their willingness to spend on luxury, has been constrained. For example, this past quarter spending by ultra-affluents, those at the top 2 percent of U.S. households, dropped to its lowest level seen throughout 2009, 2010, and 2011. If this key consumer segment for the super-premium luxury brands continues on apace, many luxury marketers will have a hard time meeting high comparable sales goals this year."
Danziger continues, “As for the next six months, Unity Marketing continues to expect challenges for luxury brands to encourage the affluent to trade up to their high-end brands, especially the lower-income HENRYs (High Earners Not Rich Yet with HHI $100k-$249.9k), who have taken a hit to their wealth and earning potential as a result of the recession and ongoing weakness in the U.S. economy.
Coach Overestimated their Customers Willingness to Spend--
Don't Let the Same Mistake Happen to You
Danziger points to the recent quarterly release by leather goods maker Coach Inc (COH) as an example of a brand that seriously overestimated HENRY customers’ willingness to spend. Coach tried to eliminate its coupon promotions tied directly to its discount outlets, which are the company’s biggest source of revenue, and which attract customers looking to stretch their dollars. This mistep led to Coach reporting weak same store sales growth in the quarter ending June 30, which then caused its stock to have its worst day on Wall Street since the 9/11 attacks.
“The number of people willing and able to pay a premium for luxury brands, like Coach is getting smaller as this weak economy continues. Our latest survey reveals that the affluent consumers believe things are only going to get worse, before they get better,” Danziger cautions.
In analysis of the latest downward slide in the LCI, Thomas Bodenberg, Unity Marketing’s chief consumer economist, explains, “Several months back, market pundits told us that the 2007-2009 recession had run its course, and that it was only a matter of time before this event would have diffused into the consumer economy. However, this is NOT the case, borne out by consumer sentiment. Two factors are dominant: first is the interconnectedness of our global economy, as economic turmoil in Europe readily translates into uncertainty here. The second looming factor is the upcoming election, whose results will either drive or inhibit consumer sentiment and willingness to purchase.”
Unity Marketing has been calculating the LCI since first quarter 2004 based upon five key measures of luxury consumer confidence including their expectations for future spending on luxury, their personal financial conditions and their overall assessment of the economy as a whole, in surveys conducted every three months among over 1,200 affluent luxury consumers. This quarter’s luxury tracking survey, conducted from July 6- 13 2012, took the measure of 1,271 luxury consumers (average income $274.8k; avg. age 44.8 years; median net worth $817k.)
>>Of special interest to political watchers:
This quarter the measure that dropped the most was luxury consumer confidence in the direction of the country overall. Nearly one-third of the affluents surveyed believe the country is worse off now than it was three months ago.
Visit this link to learn more about the upcoming webinar and to register to attend to get the latest news about the luxury consumer, what they are buying and how much they are spending. Plus hear what the forward-looking LCI predicts for the rest of 2012 and into 2013.