Affluent Consumers Continue to Cut Back on Luxury Spending, but the Pace of Decline Is Slowing at the End of First Half 2008

Unity Marketing's Luxury Consumption Index drops to its lowest ever at 51.0 points, but signs point to the worst being over for luxury marketers

Stevens, PA July 30, 2008 -- While affluent consumers continue to conserve their cash, steer clear of stores, and hold back on indulging in luxury extravagances, there are signs that the worst is over for luxury marketers. The consumer market for luxury is at least leveling off, before it starts to recover.  This according to the latest poll of affluent consumer confidence conducted by Unity Marketing from July 15-21, 2008 ( average income $204,800; age 45 years; and men 36 percent/women 64 percent).  

"By all measures the luxury consumers continue to pull back. The Luxury Consumption Index dropped to 51 points, its historic low since Unity Marketing started tracking affluent consumer confidence at the close of 2003.  Luxury consumer spending also continued to retreat, down 5.3 percent in the second quarter 2008 as compared with previous quarter and down 19.7 percent when compared with same period last year," says Pam Danziger, president of Unity Marketing and author of Shopping:  Why We Love It and How Retailers Can Create the Ultimate Customer Experience.

Further the ultra-affluent income segment ($250,000 and above) showed the largest decline in spending in the second quarter, both as compared with previous quarter and same quarter previous year.  Thus the decline in luxury consumer confidence and spending that started in the middle of 2007 continues today. 

"But Unity Marketing's research specialty is not just reporting what has been, but more importantly for marketers, reporting what will be.  In this quarter's survey we see definite signs that the worse is almost over and luxury consumers will start to recover in terms of spending," Danziger explains.  "We predict that the consumer market for luxury will start to feel new life by the end of the critical fourth quarter which is so vital for America's retailers."

What luxury marketers can do to build momentum for their brands

Commenting on the latest survey results, Tom Bodenberg, Unity Marketing's consumer economist, says, "We seen light at the end of the tunnel for luxury marketers.  Cause for optimism is the fact that the rate of decline in the Luxury Consumption Index from second to first quarter 2008 was substantially less than that from fourth 2007 to first quarter 2008, as well as less than the drop from third quarter to fourth 2007.  We take this to mean that the lack of confidence has now fully diffused so that the luxury marketplace has reached a floor, and that demand will start to recover."

Advising luxury marketers on what the results of the latest luxury consumer survey means for luxury marketers, Danziger says, "Now is the time for luxury marketers to start to build excitement for their brands by picking up the pace of new product introductions and more aggressive branding campaigns.  As the tide starts to turn, marketers that are out in front of the shift can take advantage of greater exposure to luxury consumers as their more cautious competitors take a lower profile and pull back in terms of advertising and branding.  Unity believes and the data strongly suggests that the affluent consumer will start to feel renewed confidence, most especially after the November election.

Danziger continues, "Innovation is called for now.  Affluent shoppers simply don't need anything else, since they have plenty of stuff filling their closets, attics, basements and garages.  What they need is a new and powerful reason to shop.  Luxury brands that give reluctant affluents a reason to buy now will benefit.  And that reason shouldn't be discounts or sales, but innovative, new, fashion-forward and exciting products  that will delight and excite the customer. These efforts must be backed up by advertising and branding messages that underscore quality, workmanship and value of the brands, so that the affluent consumer, who still has plenty of money but a reluctance to spend, can make a wise investment in their purchases."

About Unity Marketing's Luxury Consumer Tracking Study

These findings are based upon Unity Marketing's quarterly luxury tracking study which surveyed 1,024 luxury consumers (average income $204,800 and age 45 years).