Luxury Index Drops 9 Points

The Unity Marketing Luxury Consumption Index dropped 9.1 points at the close of first quarter of 2008, according to the Stevens, Pa.–based market research firm.

“The LCI started to measure flagging consumer confidence among the affluent about a year ago at the end of March, but their spending on luxury didn’t begin to retreat until a little later in the year,” says Pamela Danziger, president of Unity Marketing and the author of Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience. Danziger expects spending among luxury consumers to remain conservative for the next few months, at least until after the fall presidential election, when new leadership may provide an emotional lift.

The first-quarter drop comes on the heels of a precipitous 23.8 point drop at the end of the fourth quarter of 2007. But Thomas Bodenberg, Unity Marketing’s economic forecaster, sees the figures as a positive indicator that the market has hit bottom and is turning around.

“The rate of decline of luxury consumer confidence from fourth-quarter 2007 to first-quarter 2008 was substantially less than from third-quarter to fourth-quarter 2007,” he explained, citing strong spending in home goods for the first quarter of 2008. With fewer affluent consumers able to sell their homes, they’re investing more in making pleasant surroundings in them, he says.

Indeed, while 41 percent of luxury consumers indicated they were planning to spend less on luxury in the next 12 months, 13 percent indicated they were planning to spend more. Therefore, one could extrapolate that spending among the remaining 46 percent of respondents would theoretically remain unchanged.

Danziger says this is the time for retailers to make sure their offerings are compelling enough to entice shoppers right away—whether through a promotion, gift-with-purchase, or other buy-it-now incentives.

“As much as luxury marketers hate the word ‘discount,’ these tough times may require it. Affluent consumers, as much as anybody else, love to find a bargain.”