Stevens, PA October 16, 2009 -- The data is in and the news is generally positive: affluent consumers spent more in the third quarter 2009 than they did in the second quarter. However, marketers' optimism should be tempered with realism, as a deeper look at the data discloses a dramatic difference in attitude toward luxury between ultra-affluent consumers with the highest household incomes and affluents with a less robust income level. The findings are further confirmation that the coming post-recession luxury market will be far different from the one that came before.
Changes in consumer behavior follow changes in attitude, according to most psychologists that study consumer behavior. In the third quarter of 2009 that proved true among luxury consumers. Last quarter affluent consumers showed the largest historic increase in consumer confidence as measured in Unity Marketing's Luxury Consumption Index (LCI). In this quarter they followed suit by increasing their spending on luxury at near historic levels.
Overall spending on luxury goods and services rose 29.4 percent from second quarter to third quarter 2009. In all but three of the 22 product and service categories included in Unity Marketing's latest Luxury Tracking survey of 1,067 affluent consumers (avg. income $228,800), they spent more from quarter to quarter.
Good news: Affluents spent more in all but three of 22 product and service categories tracked
But Pam Danziger, president of Unity Marketing and lead researcher in the luxury tracking study, warns luxury marketers that this quarter's uptick might simply be a sign that consumers were releasing pent-up demand and that such strong spending on luxury may not carry over to subsequent quarters. "No question that this quarter's increase in spending on luxury is good news for luxury marketers. Many affluent consumers released pent-up demand in the third quarter, particularly in the area of home luxury goods and experiential luxuries, like travel and dining," Danziger said.
Danziger continues, "In digging deeper into the data, the results show that the sharp rise in luxury spending was driven primarily by increased spending and participation in the luxury market by those at the highest-income levels (i.e. $250,000 and above). Affluent consumers at the lowest-income level (i.e. $100,000-$149,999) simply dropped out of the luxury market this quarter by refusing to trade up to the luxury level. So this quarter's luxury tracking study was heavily weighted toward those in the upper-income levels. But there are only 2.5 million households in the U.S. with incomes at that level, so luxury marketers face stiff competition for the attention of this small, highly-niched market segment. By contrast there are 21.5 million households with incomes from $100,000-$249,999 where we are seeing a drop off in participation in the luxury sector." Click the link to the right to review the latest Census data on the number of affluent households.
Further moderating results in this quarter's luxury tracking is a modest gain in overall luxury consumer confidence as measured by Unity Marketing's exclusive Luxury Consumption Index (LCI). For the third quarter 2009 the LCI only rose 1.6 points. Commenting on the results of the latest survey Tom Bodenberg, Unity Marketing's chief economist says, "The Luxury Consumption Index for third quarter 2009 was 75.9, which is a very slight increase from July’s 74.3, thus ending a three-quarters-long pattern of substantial improvement. Stated another way, the index has held its half-way climb back from its precipitous fall in the third quarter last year. In the latest data we find that the downward spiral in the LCI dating from mid-2007 has bottomed out, and there are signs of a long, slow, but steady haul upward."
To learn more about Unity Marketing's 3Q2009 Luxury Tracking survey, call Pam Danziger at 717-336-1600.
For Media: Pam Danziger available for interviews.
3Q2009 Special Investigation: Forecast for Luxury Travel through 2010
In the current economic recession the travel and tourism sector has been particularly hard hit. The latest government statistics released September 23 by the Bureau of Economic Analysis found that real spending on travel and tourism declined 1.4 percent from first quarter 2009 to second quarter, after dropping 8.9 percent from fourth quarter 2008 to first quarter 2009.
Further the market for luxury travel has followed the downward trajectory of the travel market in general. Unity Marketing's Luxury Tracking Study finds significant cut back on travel spending among affluent consumers. In the first three quarters of 2009 luxury travelers' spending drop 22 percent from levels reached during the same period in 2008, from $22,072 to $17,259 in 1-3Q2009.
In response to these dramatic cuts in luxury travel spending both at the personal and corporate level, leading luxury hotel brands are reducing their star ratings in an effort to save money and offer lower rates to travelers. Bloomberg News reports that some of the St. Regis and W Hotels will reduce their level of service from five to four-stars. This follows similar moves by some Hilton and InterContinentel Hotels.
According to analysts, many of the services that are required to rate five stars in the Mobil Travel Guide are largely superfluous and travelers won't really miss them, such as tongs in the ice bucket, room service wine poured from the bottle and pool escorts that take the guest to their chair and offer them refreshments.
Commenting on the new luxury travel economy, Pam Danziger, president of Unity Marketing, says, "Some of the declines seen in luxury consumer's travel spending can be attributed to the exceptionally good discount offers being made by the luxury service providers. For instance, our tracking study through the first half of 2009 shows a dramatic increase in the percentage of affluent consumers taking luxury cruises and staying in luxury resorts. Since spending is down but purchase incidence up, that means more affluents are taking advantage of attractive discount offers that save them money but still allow them to travel in style. In other words, they are getting more for less."
In the third quarter 2009 Unity Marketing's Luxury Tracking Study investigated luxury travel in depth. The results explore affluent consumers' plans and desires for luxury travel through 2010. Both their plans for business as well as personal travel were studied, including trends in spending. Included in the survey was what kind of travel experiences are most desired, as well as lodging features that are most important to these high spending and discerning travelers. Luxury consumers share the features and influencers that are most impactful in determining their leisure travel destinations. And data about how they book their travel experiences, either through travel agents, online using travel websites or directly with the travel providers, was collected. Finally the foreign locations that figure into their travel plans through 2010 are also examined.
The results of this special investigation into the future of the luxury travel market through 2010 are available in the Executive Summary 3Q2009, as well as the Luxury Tracking Study 3Q2009 full report.
Editions Available:
(Please Note: Your subscription to any 3Q2009 Luxury Tracking Report ediction may be applied to the sponsor fee to the annual Luxury Tracking subscription for 2010)
