Luxury Consumer Confidence Plummets as over 70 percent of Affluents Feel the Economy Is on the Skids

Unity Marketing's Luxury Consumption Index drops to historic low of 54.4 points as 41 percent of luxury consumers expect to spend less on luxury in the coming year

Stevens, PA April 22, 2008 -- The doldrums in the U.S. luxury market are expected to continue for at least the next six months based upon the latest survey of luxury consumer confidence conducted by Unity Marketing.  The Luxury Consumption Index  (LCI) dropped 9.1 points at the close of the first quarter 2008 to a historic low of 54.4 points.  This follows a precipitous drop of 23.8 points at the close of the fourth quarter 2007.

"The LCI started to measure flagging consumer confidence among the affluent about a year ago at the end of March,"  says Pam Danziger, president of Unity Marketing and author of Shopping:  Why We Love It and How Retailers Can Create the Ultimate Customer Experience.  "But their spending on luxury didn't begin to retreat until a little later in the year.  Today with the LCI at a historic low of 54.4 points, we expect luxury consumers to be conservative in their spending at least until the Presidential election when new leadership may provide an emotional lift."

Several key factors are driving the LCI down, most importantly consumers' expectations for future luxury spending and their assessment of the overall economic situation.  For example, some 41 percent of luxury consumers expect to spend less on luxury in the next twelve months, compared to only 13 percent who expect to spend more.  Further 71 percent say the overall financial health of the country is worse now than it was three months ago.

Luxury marketers need to overcome high levels of luxury consumer resistance

She advises luxury marketers, "In the short term luxury marketers will find that consumer resistance to their marketing efforts will run extremely high.  Marketers that want to jump-start their businesses will need to make their offerings truly irresistible and the rewards to the consumer immediate.  In other words, they need to make the customers an offer they can't refuse, which might include an attractive incentive to buy now, such as gift-with-purchase, special sales or limited time discounts on selected featured products.  As much as luxury marketers hate the word 'discount,' these tough times may require it.  Affluent consumers, as much as anybody else, love to find a bargain."

Unity Marketing's latest luxury consumer tracking survey was conducted April 7-11 among 1,258 luxury consumers with incomes of $100,000 or more. The average income of all those surveyed was $173,400 and average age 45.9 years. 

Has the Luxury Market Reached Bottom?

Commenting on whether the LCI has reached bottom yet, Thomas Bodenberg, Unity Marketing's economic forecaster, says "Perhaps the worst is over.  The rate of decline in luxury consumer confidence from fourth quarter '07 to first quarter '08 was substantially less than that from third to fourth quarter, '07.  This may mean that the lack of confidence has now fully diffused and that luxury consumers' confidence has reached a floor." 

He continues, "For example, in the first quarter 2008 spending was strong in the home luxury goods arena, as compared with the preceding quarter.  Presumably since luxury consumers can't sell their homes, they are investing in enhancing their existing living spaces with an eye toward increasing the value of their homes -- and their enjoyment living there -- until the housing market rebounds.  Not surprisingly, the home category was one we predicted last year as a bright spot in the luxury market for 2008."

Regarding the predictive power of the LCI and Unity Marketing's luxury consumer surveys, Danziger says, "Now in our 5th year of conducting the only longitudinal tracking study of the luxury market, the predictive power of the index and the trends we track in affluent consumer spending are being realized.  Our goal is to help luxury marketers see over the horizon in order to realistically advise their investors about the present and future trajectory of the luxury market and to develop strategies that will help them manage their businesses in the near- and long-term."

Unity Marketing has prepared a white paper about the Luxury Consumption Index and predictions for the luxury market in 2008

Pam Danziger has prepared a white paper about Unity Marketing's Luxury Consumption Index and predictions for the luxury market in 2008.  Click here to download a copy.