Luxury Consumers Continue Spending Spree in 2005 Spending Will Grow Modestly
Thursday, 19 January 2006
Luxury consumers ended 2005 on an upswing, according to Pam Danziger, president of Unity Marketing, in a speech at the National Retail Federation’s Annual Convention, in which she announced the results of Unity’s luxury consumer survey. The average amount spent by an affluent household on luxuries, including luxuries for the home, personal luxuries, automobiles, and luxury experiences, rose 3.8 percent, to $52,588 in 2005, from $50,640 in 2004.
But their spending continues to shift towards the experiential, while they are spending about the same or slightly less in traditional luxury goods categories.
The average luxury consumer household spent 4.6 percent less on home luxuries in 2005 as 2004, $19,990 as compared with $20,948 in 2004. Personal luxury spending, on things like luxury apparel, fashion accessories, jewelry and watches, wine and spirits, pet luxuries and pens and desk accessories, rose 5.6 percent to $10,007 in 2005.
Consumers’ Spending on Experiences Nearly Doubled in 2005
Spending on luxury experiences – including travel, dining, entertainment, spas and beauty services and home services – nearly doubled, from an average of $11,632 in 2004 to $22,746 in 2005, a 95.5 percent increase.
The average amount spent on luxury automobiles, a low purchase incidence category as compared with the others, also rose in 2005, up 18.5 percent to $42,696. [Note: The category averages don’t total $52,588 because not all households buy in all categories.
For luxury goods marketers and retailers the challenges for the future are daunting in the face of this trend toward experiences. Luxury consumers are spending more, in many cases lots more, on life-changing experiences, while their need for luxury goods is waning.
Now that the baby boom generation (which makes up 57 percent of all households with incomes of $100,000 or more) is turning 60, they have already acquired the material trappings of luxury. Buying another mink coat, diamond necklace or designer handbag just doesn’t have the same appeal.
The trend for the future for the baby boomer luxury consumers is toward experiences and this will tip the entire luxury business experiential simply because of the generation’s size.
Americans Are Growing Wealthier, Feel Entitled To Spend On Luxury
Americans continue to grow wealthier with the average income of all households rising to $60,500 in 2004. There are 30.2 million households with incomes of $75,000 (which Unity defines as near-affluent and affluent) and the average income of that segment is $137,500.
At the upper end, there are 1.7 million households with incomes of $250,000 and that segments’ average income is $438,338 per year.
As luxury consumers’ incomes rise, so too does their spending. Households with incomes over $150,000 tend to spend two-to-three times more in most categories of luxury than those with near-affluent incomes of $75,000-$99,999. But interestingly their purchase incidence of luxury, i.e. the percentage of households that purchase luxuries, is level across all income levels.
Danziger explains, “That means near-affluent households are buying luxuries at about the same rate as super-affluent households, only they are spending less. It’s the difference between buying last season’s Coach bag in the Coach outlet store as compared with the latest Dolce & Gabbana number at Saks Fifth Avenue. Both are luxurious to the individual consumer.”
The study also found that the consumer is the final arbiter of what is luxury, not the manufacturer, the designer, or the retailer.
Moreover, consumers at all income levels feel entitled to luxury, whether it is a “big” luxury like a two-karat right-hand diamond ring from Cartier or a “little” luxury like a similar-sized Moissanite ring from J.C. Penney’s.