Luxury consumers’ confidence drops 14 points

Luxury consumers’ confidence plummeted during the second quarter 2006, dropping 14 points down to 99.2 from a high of 113.2 at the close of the first quarter, according to Unity Marketing’s Luxury Consumer Tracking Study. This follows two consecutive quarters of rising luxury consumer confidence.

“All values used to calculate the Luxury Consumption Index dropped sharply,” said Pam Danziger, president of Unity Marketing, Stevens, Pa., which does the survey. “How they feel about their personal financial health dropped. How they feel about their prospects over the next 12 months dropped. Their expectations about future spending on luxury dropped. But most significantly, luxury consumers’ feelings about the financial health of the country declined the most. At the close of the second quarter, nearly half (47 percent) of luxury consumers believed the country was worse off compared to three months ago. Only 16 percent felt it had improved,” Danziger said.

The index is based upon a quarterly tracking survey of more than 1,000 luxury consumers (average income $147,900) conducted in July 2006.

“A number of factors contributed to luxury consumer worries,” added Thomas Bodenberg, Unity Marketing’s economic forecaster. “On the home front, gasoline prices have remained high which threatens more price inflation. They also faced a decline in the housing market, electoral uncertainty as the election season starts to heat up and a reduction in the rate of economic growth. Luxury consumers too are worried about the long term impact of continued unrest in the Middle East, Iraq, and Afghanistan.” 

Despite the steep decline in luxury consumer confidence, the luxury consumers maintained the same level of overall spending as in the first quarter, according to the survey. Luxury consumers spent $221.8 billion on luxuries in the second quarter, up .7 percent from total spending of $220.2 billion in first quarter.

With the exception of experiential luxuries, the luxury market declined in all categories in the second quarter. The market for home luxuries was down 5.7 percent to $48.3 billion. The personal luxury market, including fashion, jewelry, watches, pens and writing instruments, wine and spirits, declined 8.7 percent in the quarter to $29.9 billion and the market for luxury automobiles was down .9 percent to $60.8 billion. By contrast, the market for experiential luxuries grew in the second quarter 10.7 percent to reach $82.8 billion, with the market for luxury travel, dining, entertainment, home services, and spa/beauty services increasing during the quarter. 

“The growth in the experiential luxury market is not surprising in the face of luxury consumers’ growing feelings of anxiety. When they feel bad, they will spend money in the areas of their life where they gain the greatest personal satisfaction and happiness and that is toward experiences,” Danziger said. “For most luxury consumers the experience of a night out on the town or a romantic weekend getaway gives them far more personal pleasure than buying another designer handbag or a new high tech television set.”