Luxury Consumers' Spending During Third Quarter Plunges to its Lowest Level in More than Two Years as Luxury Consumer Confidence Reaches Historic Low Levels

Declining consumer confidence, especially among the less well-to-do luxury consumers, results in drop of more than 20 percent in average amount spent on luxury

Stevens, PA October 26, 2007 -- Luxury consumers' feeling of confidence tanked in the third quarter as measured by Unity Marketing's Luxury Consumption Index. The index plummeted to 87.3 points, its lowest level since 2004, following a 4 point drop in the second quarter.  The index is based upon a survey of over 1,000 luxury consumers (average income $150,200 and age 43.6 years) tracking their buying preferences and spending patterns conducted early October 2007. 

Pam Danziger, president of Unity Marketing and author of Shopping:  Why We Love It and How Retailers Can Create the Ultimate Customer Experience, said "Two quarters' steady decline in the Luxury Consumption Index predicted a cut in luxury consumer spending, which is exactly what occurred in the third quarter. The average amount spent by affluent consumers on luxury dropped 21 percent from an average of $15,283 in the second quarter to $12,142.  This is the steepest decline since the fourth quarter of 2004 and it brings the average spending of luxury consumers to its lowest level since second quarter 2005." 

Further, this negative turn in luxury consumer confidence may result in weak performance this holiday season as the affluent trade-down to less pricey gift choices. 

Thomas Bodenberg, Unity Marketing's economic forecaster said, "There are myriad reasons for the drop in luxury consumer confidence: the increase in foreclosures due to the correction in the mortgage markets, the dip in value of funds financed by mortgage-based securities, subsequent layoffs in the financial sector industries, the lag in luxury home building (and subsequent home furnishings and remodeling), oil approaching $100 per barrel, and lack of confidence in the political process in both major parties and in the executive and legislative branches of government. The result is an ennui that hampers the purchase of luxury goods and services -- the outlook for the Christmas season is clouded at best."

Luxury consumers cut their spending on luxury goods, while spending more on experiences

The third quarter luxury tracking survey found that spending was particularly weak in personal luxuries -- especially fashion accessories, jewelry and watches -- as well as in key home luxury categories, notably home decor fabrics, window and wall coverings, kitchenware and linens and bedding.   But while luxury consumers spent significantly less on luxury goods, their spending on luxury experiences actually rose 11 percent. 

"In the face of declining luxury consumer confidence and a cut back in spending on material goods, luxury consumers chose to indulge in experiences, notably travel, dining and spa/beauty services, that give them more meaningful gratifications than comes from buying a consumer good like a handbag.  Let's face it, a purse is only a purse, but a luxury experience is something to remember," Danziger says.

The affluent consumer with lower levels of income were the one's most impacted by declining confidence

Income played a deciding role in how much luxury consumers' cut back on their luxury spending in the third quarter.  Only the upper-middle-income (HHI $75,000-to-$99,999) and lower-upper-income consumers (HHI $100,000-to-$149,999) cut back their spending, while the super-affluents (HHI $150,000 and above) spent about the same as they did in the second quarter.  This trend will have the greatest impact on luxury marketers that are most highly dependent upon the spending by the 'trading up' consumers, Danziger cautions.

"If consumer confidence continues to weaken among the ranks of the affluent, it will be a testing time for luxury marketers and brands. Many luxury brands are going to discover just how dependent they have become upon consumers' penchant to 'trade up' to more luxurious offerings than they otherwise could afford.  On the other hand, luxury brands that have built their business on the super-affluent market will likely be immune to this trend,"  Danziger says.

"The conventional wisdom is that the affluent market is unaffected by the economic ups and downs that impact the average consumer.  But today the affluent market is far more diverse and stratified than it historically ever has been.  That means luxury marketers need to understand the segments within their target market and develop marketing strategies that clearly differentiate the priorities and passions of  these different segments,"  Danziger concludes.

For media:  Charts, tables and graphs are available on request.