Luxury Consumers' Personal Confidence Rose in Fourth Quarter, but Doubts about the Economy as a Whole Kept Luxury Consumption Index Flat

Luxury Consumption Index Remained Flat at 95.6

Luxury consumers expressed mixed messages about consumer confidence at the beginning of 2005. While luxury consumers (average income $136.5k) felt positive about their personal financial status and spent more on luxuries in the fourth quarter 2004, they expressed strong doubts in the financial well-being of the economy as a whole which held down the Luxury Consumption Index to 95.6 points. That represents a .4 decline from the third quarter and down 7.1 points from 2004's high of 102.7 at the end of the second quarter.

On a year-to-year basis, the Luxury Consumption Index was down 4.4 points at the end of 2004, from its baseline of 100 points in December 2003. The Luxury Consumption Index, compiled by Unity Marketing, measures the luxury consumers' feelings and attitudes about their financial well-being.

But along with the general malaise felt among many luxury consumers about the future economy over the next twelve months, there were bright spots in this quarter's luxury consumer tracking.

"Overall, luxury consumers (average income of $136.5k) expressed their financial status today as better off (39 percent) or about equal to (46 percent) the way it was three months ago. Moderating their positive personal outlook was weakness in their view of the country as a whole. Only 26 percent believed the country as a whole was better off," explains Pam Danziger, president of Unity Marketing and author of Let Them Eat Cake: Marketing Luxury to the Masses - as well as the Classes. "So the luxury consumers at the start of 2005 felt positive about their personal financial position, but they expressed doubts about the economy as a whole."

"Overall, the demand for luxury goods and services looks good in the short-term," says Thomas Bodenberg, economic forecaster for Unity Marketing and former Conference Board executive. "However, the outlook for intermediate-term (beyond six months) looks cloudy due to two factors. One is the uncertainty engendered by the Bush budget, especially the tax outlook. Second, increasing mergers and acquisitions activity in such arenas as telecommunications and pharmaceuticals gives an uncertain employment outlook for thousands of highly-paid executives and administrators in the affected firms. We feel this is reflected in the data."

Luxury consumers' worry about the future did not impact their luxury spending in the fourth quarter 2004, with spending up 12 percent overall. Luxury consumers spent less on their home in the fourth quarter, while spending about the same in personal luxuries, including fashion, fashion accessories, jewelry and automobiles.

It was in experiential luxuries, including fine dining, travel, beauty services and home services, where the biggest spending increase was tracked, up 19 percent over spending in the third quarter. "As the luxury consumers continue to focus their spending on experiences, this is the category where the most robust growth can be found for luxury marketers," Danziger explains. "It was also in spending on experiences where the real differences in affluence were measured. The super-affluent consumers (incomes of $150k and above) increased their spending on experiential luxuries by two-thirds in the fourth quarter and they spent more than two-and-one-half times more on experiences in the fourth quarter than the affluent consumers (incomes $100k to $149.9k)."

This benchmark index of luxury buyers is calculated form a sample of over 700 upper-income households throughout the United States. This panel, with household incomes over $75,000 (one-third $150,000 or more) represents one of the largest longitudinal studies of high-end luxury consumption of goods and services. Panelists reported purchasing behavior of luxury goods and services over the past three months, as well as attitudinal and expectation data about luxury brands and categories, their households and the health of the economy in general.

Specifics included in Unity Marketing's Luxury Tracking Study are purchase incidence and spending, where purchases were made and expectations of future purchases on:

Also included in the fourth quarter tracking study is a special study of luxury gifting and share of luxury purchases that are made as gifts.

Unity Marketing publishes its Luxury Tracking Study quarterly with the next due in June/July 2005. For more information, visit http://www.unitymarketingonline.com/reports2/luxury/luxury3.html or call Pam Danziger at 717-336-1600.

For media, Unity Marketing can make tables, charts and graphs available about luxury consumer spending upon request.

March, 2005 (About 100 pages) Published Price $2,500

(Please Note: With the purchase of this report, subscribers may apply subscription fee for 4Q2004 report to annual Luxury Tracking subscription)

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