Luxe In Flux

Many luxury brands posted strong sales throughout 2011, and a number of our subscribers have asked us how we envision the luxury market evolving in the year to come. For our final column of 2011, we’ll share our latest perspective on affluence and luxury with a few key take-aways from our November forum, “Luxury in American Lives, 2012.”

1. Luxury spending is nearly universal, yet also concentrated. Virtually all Affluents buy luxury at some point – 94% told us they purchased luxury in at least one of the 15 categories we measured, and 70% plan to do so in the coming year. But luxury spending (in dollar terms) is primarily concentrated among a handful of particularly high-end consumers. Specifically, we found two key “inflection points” in luxury spending – compared to our core “Affluent” group with at least $100,000 annual household income, luxury spending increases among those with more than $250,000 in household income, and increases again among those with $500,000+ in household income.



2. Rising markets have shaped the luxury rebound. Growing luxury interest has been shaped by macro-economic trends particular to today’s “recovery” – a weak job market has kept the middle class insecure, while the relatively strong performance of the stock market has bolstered the portfolios of the traditional luxury buyers at the very top of the income ladder. Those with $250K+ HHI average more than $1 million in net worth, and those with $500K+ HHI average more $2.8 million in net worth. When the market is up, they’re up – big. Throw in an attitude of “frugal fatigue,” and some of the resulting gains get channeled into luxury spending.

Surprised to hear that the markets are up? You’re not alone. It hasn’t seemed that way. As this article went to press in mid-December, the Dow hovered around 12,000, but the confidence of many has been shaken. The debt ceiling crisis precipitated a late-summer market swoon that gave back many of the year’s gains, and brought on an unsettling period of volatility. But in the short term, the Dow is actually up about 13% from Oct. 3, when it closed at 10,655. More importantly, the Dow is up a remarkable 81% from March 2009, when it dipped below 7,000.

3. The growing role of “treats” and “mini-luxuries.” Although the “core” customers for luxuries have seen their large portfolios grow larger, most Affluents remain mired in a world of frugality and restrained spending. Still, the desire for luxury is nearly universal. In the mid-2000s, the “merely Affluent” and the “nearly Affluent” both purchased luxury occasionally and at modest price points, earning the moniker “aspirational luxury shoppers.”

Today, this same dynamic plays itself out in the trends toward smaller, more personal, and more intimate luxuries or “treats.” For example, 92% of Affluents agree, “To me, small indulgences can be just as meaningful as purchasing a high-end luxury product.” One of the respondents to our November survey, in explaining why she would spend less on holiday gifts this year, summarized the “treat mindset” this way:

While I'm a firm believer that spending helps stimulate the economy... I'm just not feeling it this year, especially in light of such financial instability. Although, I can always revise my definition of "luxury." Nix the Rolexes this year, and instead indulge in top of the line CHOCOLATE!  :-D”

Many seem to agree with her. For example, champagne industry association CIVC reports that 2011 champagne sales are up 15% from 2010, and on a pace to rival the record of 339 million bottles shipped in (pre-recession) 2007.

4. There are reasons for optimism about luxury. Whether it’s mini-treats or traditional luxuries, there are reasons for optimism about luxury marketplaces going forward. Among the $250K+ HHI group, for example, those who anticipate a growing interest in luxury far outnumber those who expect a declining interest, across each of the 11 categories we measured.

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