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RAPAPORT... U.S. affluent consumer confidence eroded further in the second quarter of 2015, according to the Luxury Consumption Index (LCI), a propriety survey conducted by Unity Marketing. The five key measures of how affluents feel about economic health of the country, coupled with their personal financial situation all fell, lowering the LCI to just 9 points above the all time low in the fourth quarter of 2008. Pam Danziger, the president of Unity Marketing, explained, however, that the consumer climate today is very different from 2008. "Unlike the hand-wringing and doom saying we saw during the depths of the recession, affluents have gotten on with their lives. They have adjusted to a level of lower expectations and they are doing just fine. Sure, they may still miss some of those free-spending days before the recession hit, but they are finding pleasures in the 'small, everyday' things. They learned the lessons of living close to the edge of their financial limits and have grown accustomed to a 'new normal' where luxury is only occasional indulgence." Luxury Drought What this means for jewelers is they, too, must adjust to a new normal. Danziger reminded luxury marketers that simply going after the very rich won't spur growth because the top 2 percent to 3 percent of wealthy households only account for 10 percent of all spending, whereas 40 percent of total consumer expenditures are made by the HENRYs -- defined by Unity Marketing as high-earners-not-rich-yet. Those consumers earn between $100,000 and $250,000 annually and represent the top 18 percent of all U.S. households. "It's the HENRYs that gave rise to the boom in the luxury market up to the recession, but today they are living a comfortable middle-class lifestyle. In fact, the HENRYs are the newly emerged American middle-class consumers with discretion, now that the old middle-class has lost much of their discretionary spending power due to the recession," Danziger said. "The HENRYs are also the gatekeepers for the future luxury market, but today they simply aren't buying into it." These shifts in consumer habits, the lack of "buy in" to brands by HENRYs, coupled with demographics are leading the luxury industry into a spending drought. Unity Marketing anticipates an overall "slow down" in the rate of consumer purchases and a reduction in consumer spending at the high-end. Danziger explained, "Consumers reach their peak earning years between 35 and 54. This period also corresponds to the years when consumers spend the most. But today, the baby boomers, born 1946 to 1964 and aged 51 to 69, are rapidly advancing out of that range. The genXers that follow, aged 36 to 50 years old, are roughly half the size of the boomer generation. As a result, they will not, cannot pump enough dollars into the consumer economy, including the luxury market, to make up for the loss of the boomers' spending power." So, how will your jewelry shop face the pending economic drought? Differentiate product, add value to purchases and engage precious customers by meeting their expectations, Danziger has been advising for some time. There are not enough customers with enough spending power to keep all the jewelers, luxury brands, and many retailers going, she said. "The consumers have already adjusted to the reality of lowered expectations. Now it is time for the marketers to do the same," Danziger said.
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