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Luxury Consumption Index Crashes, Affluents Plan Spending Cuts

Opportunities Exist to Grow Brand Awareness

Jan 30, 2013 1:44 PM   By Jeff Miller
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RAPAPORT... Unity Marketing's Luxury Consumption Index (LCI) crashed in January, losing 19.4 points or its second greatest loss since the Great Recession. The LCI had jumped 24.3 points in early October, signaling the willingness of wealthy consumers to spend into Christmas season. However, Unity Marketing determined that ''what goes up, must come down,'' and that is exactly what happened in January as  affluent consumer confidence plunged the greatest amount since the first quarter of 2008.

''Affluent consumers are starting 2013 with a dismal view of the overall economy and their personal financial situation.  This is bound to have a dampening effect on results for marketers that target the luxury consumers specifically, and the consumer economy in general,'' said Pam Danziger, the president of Unity Marketing.

Nonetheless, there is some opportunity for luxury brands to observe and partner with or penetrate areas where affluent consumers are deciding to spend.  The LCI tracked that affluent consumers spent more on art, antiques and furniture and other home furnishings in the fourth quarter of 2012 as compared with the third quarter. Spending dropped for fashion and fashion accessories, however, luxury consumers spent more on spa and salon beauty services, showing they are still willing to invest in things that keep up appearances, according to goods

The affluent consumer segment represents the top 20 percent of U.S. households, based upon income beginning at $100,000.  The affluent households account for more than 40 percent of all consumer spending in the U.S. 

Danziger said, ''The affluent are the 'heavy lifters' across the U.S. consumer market of 115 million households.  Most any consumer-facing business, such as automobiles, fashion, retail, grocery, food and personal services, depend upon attracting the generous spending of the affluent.  From dollar stores to 5th Avenue luxury boutiques, the affluent are a critically important consumer segment with plenty of discretionary spending.  Today they are feeling depressed about their financial situation.''
At the moment, affluents see the nation's financial health on a stretcher and they have no confidence in political leadership.

Danziger found that prospects for spending on luxury goods have eroded and she predicted that the market will become increasingly competitive as fewer consumers anticipated spending more on goods and services for the next 12 months. In fact, Unity Marketing determined that 28 percent of affluents will reduce spending on luxurious products this coming year.

The largest share of affluents, since the Great Recession, believe now that they will be worse off financially in 12 months compared with today.  ''Typically the affluents are an optimistic bunch who believe that they have control of their financial situation and can improve their lot over the next year,'' Danziger said. ''However, in the latest survey nearly one-fourth (22 percent) predict that they will be worse off in the next 12 months as compared to today.  This is the highest we've seen this measure since the depths of the recession in 2008.  It is another signal for restrained affluent consumer spending for 2013.''

Tom Bodenberg, Unity Marketing's chief consumer economist, advised, ''Marketers need to re-position luxury goods as a value proposition.  That means to keep the luxury image and connotations --advertising creative, packaging, media and service-- but communicate, in a very implied, almost one-to-one way, affordable pricing.  The key is an almost subliminal positioning of value.  The current cultural climate can't support showy displays of luxury.  People with means want to make smart buying decisions and playing up the quality and value of a brand, while downplaying the pure 'luxury' of it is key for today.''

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