Affluent consumers' pessimism toward the economic situation is affecting their confidence and thus shopping behavior, according Unity Marketing's Luxury Consumption Index (LCI), which dropped 10.7 points to reach a historic low of 40.3 points in the third quarter of 2008, DIB Online says. This is the lowest level since the end of 2003, when Unity Marketing, a marketing consulting firm, began measuring affluent consumer confidence.
“Since the middle of 2007, the LCI has been in free fall, dropping more than half of its value to reach an all time low of 40.3 points at the end of third quarter 2008. But what is of more importance is that luxury consumers are taking action in response to the current economic crisis,” says Pam Danziger, President of Unity Marketing. She says that luxury consumers are not just expressing an intention to save money, they are “simply staying out of the stores to resist temptation. The latest survey shows affluent shoppers are being prudent and careful with their money.”
According to the latest survey of 1,161 affluent consumers with an average income of US$210,000, some 56 percent are spending less on luxury now as compared with 12 months ago; and 54 percent expect to spend less on luxury in the next 12 months.
Thomas Bodenberg, Chief Consumer Economist of Unity Marketing, doesn't expect a turnaround of the luxury consumer's mindset any time soon, especially as their confidence continues to decline.
“For this holiday season, we see affluent shoppers turning more frequently to mass-market retailers with a high-quality, value-driven image, like Target, as well as to outlet shopping where luxury brands can be had for less.” He also stresses that the internet will be a “vital tool” for affluent shoppers this holiday season since it supports comparison shopping.
“With affluent consumers watching their pennies, this is also the time for luxury brands to better understand and use pricing strategies in order to maximize both profits and sales potential,” he suggests.
As the luxury industry enters 2009, some luxury executives look like deer caught in the headlines -- paralyzed by the terrifying headlines and by declining sales, says Milton Pedraza, Chief Executive Officer of the Luxury Institute in New York.
The Luxury Institute has been presenting the empirical case directly from the voice of the wealthy consumer for luxury brands to make their websites the centerpiece of their online and offline strategies since 2006. Nevertheless, the traditional luxury industry has been slow to adopt Web 2.0, says Pedraza.
Luxury should be leading M-Commerce (mobile phone commerce) innovation since it creates an enhanced experience for all customer segments, suggests Milton Pedraza, Chief Executive Officer of the Luxury Institute in New York, according to DIB Online in its another article. Generation X and Y shoppers are influencing the lightning speed with which consumers of all ages, including boomers, are embracing mobile technology for on-the-go entertainment, search, and transactions. According to a Luxury Institute WealthSurvey of luxury consumers and mobile device usage, 22 percent of consumers have executed a transaction via a mobile device, while 21 percent have made a payment via mobile. Those doing so tend to be under 45 years-of-age, but significantly wealthier, with net-worth at US$5+ million.
In the recent boom, Pedraza says, some in the luxury industry, and their cheerleaders, deluded themselves into believing that the more expensive an item, the greater its appeal to the wealthy, regardless of quality, functionality and service experience. Like their customers, they use both sides of their brains to make luxury purchasing decisions.
For several years, the Luxury Institute's impartial research has documented the rise in relevance of Corporate Social Responsibility. Luxury Institute surveys document that wealthy consumers have increased their preference for socially responsible brands from 51 percent in 2006 to 57 percent last year. The Institute says to expect that number to rise dramatically by 2009. The global crisis of confidence in governmental, financial and other institutions will drive luxury consumers to demand that luxury brands serve not just them, but society as a whole. They will require luxury brands to be ethical with all constituents, charitable in ways that make a difference to their beneficiaries, and eco-friendly in ways that can be documented. These enlightened practices will elevate luxury to a new level in the eyes of all of its constituents, including young aspirationals, who are even more sensitive about these practices than their elders.
Luxury consumers will expect luxury brands to be transparent, and to independently authenticate claims, such as country of origin, quality, customer referrals, and social responsibility, like never before.
In the midst of this financial crisis, and the populist backlash on unearned financial services wealth, many wealthy consumers are a bit confused and feeling a tad defensive about luxury, even if they have money to spend. Consequently, many wealthy consumers will opt for classic luxury that is unique and exclusive, predicts the Luxury Institute.
