The strong demand for luxury goods and services in the U.S. during the past two to three years has largely come to an end as conspicuous consumption seems to be out of favor with affluent households, according to the results of a recent survey.
Luxury consumer confidence as measured in the Luxury Consumption Index “took a deep dive to levels not seen since the recessionary period of 2008 and 2009,” said Pam Danziger, president of Unity Marketing, which produces the quarterly survey.
The LCI saw a decline of nearly 15 percent in the average amount spent on luxury in the fourth quarter of 2011. The latest luxury tracking survey was conducted January 7-18, among 1,333 affluent luxury consumers with an average income of $286.300. They represent the top 20 percent of U.S. households
“The LCI has been on a topsy-turvy course since 2010, one quarter it goes up, the next down. But looking over the course of the last two years, the LCI lost more than it gained,” Danziger said. “At the start of 2012 the percentage of luxury consumers expressing a definite willingness to spend more on luxury (one of the major components of the index) was down.”
Tom Bodenberg, Unity Marketing's consumer economist, says the results of the survey show that luxury consumers have become “non-committal.”
“There appears to be a trend of non-conspicuous consumption—perhaps as fallout from the 'Occupy' movement—among North American luxury consumers,” he said. “Buying behavior will shift to an almost 'hidden' form of consumption of luxury goods—where ostentation is minimized. The actionable demand for luxury goods and services, on the whole, is flat and still substantially below the levels of two to three years ago. What is interesting is that this apparently 'recession-proof' segment of the marketplace has also been greatly affected by the downturn. Media reports of a 'renaissance' in the luxury market appears to be limited to an extreme top tier of consumers, a small number compared with the bulk of the luxury marketplace potential.”
Danziger says affluent customers are looking to find value when they shop and luxury brands need to recognize this.
“If your brand doesn't deliver a suitable return on investment, they'll turn to competitive brands that will give them high quality without such an extravagant investment,” she said. “Take Coach, for example, ranked this quarter as the top fashion boutique destination among luxury consumers, as well as the number one fashion accessories brand. Coach offers its customers high quality, long lasting and still luxurious handbags but with an average price around $300, making the bags expensive for the masses, but affordable for the 'classes.”