Luxury Consumption Index in Freefall

October 22, 2008

This article is included in these additional categories:

Household Income | Retail & E-Commerce

Luxury consumer confidence, as measured by Unity Marketing‘s Luxury Consumption Index (LCI), continued its downward trajectory in the third quarter 2008, dropping 10.7 points to reach a historic low of 40.3 points, reports Retailer Daily.

That’s the lowest level since Unity started measuring affluent consumer confidence at the end of 2003:


“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 to luxury marketers than the decline in the LCI is that luxury consumers are taking action in response to the current economic crisis,” said Pam Danziger, president of Unity Marketing.

“[A]ffluent consumers’ negative feelings about their economic situation are translating into changes in their shopping behavior,” said Danziger, citing Unity Marketing’s most recent survey of luxury consumers, conducted October 3-8 following the government bailout and during the recent stock market upheaval.

Luxury Consumers Spending Less

Among the findings of this survey conducted among nearly 1,200 affluent consumers:

  • 56% are spending less on luxury now compared with 12 months ago.
  • 54% expect to spending less on luxury in the next 12 months.

Among affluents’ shopping-behavior changes, according to Danziger:

  • Luxury consumers are shopping more strategically by looking for sales.
  • They are trading down to less-premium brands.
  • In fine dining, they are choosing less-premium restaurants and dining out less often.
  • 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. They are still indulging in luxuries, but they are being more selective in what they choose to indulge,” Danziger said.

A challenging Q4 for luxury marketers and retailers

“In taking the pulse of the luxury consumer’s mindset, we don’t yet see a turnaround emerging shortly. Their confidence continues to slide, especially among the over-40-year-old affluents who make up the largest segment of the luxury consumer market,” said Thomas Bodenberg, Unity Marketing’s chief consumer economist.

For this holiday season, Bodenberg foresees affluents’ shopping behavior will adapt as follows:

  • Affluent shoppers will turn 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.
  • The internet will be a vital tool for affluent shoppers, as it provides efficient comparison-shopping across a wide range of retailers.

As advice to retailers, he offers the following:

  • “Due to the decline in the value of the dollar, now is a good time for luxury goods marketers to target international consumer segments, especially EU residents and Canadians.”
  • “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.”
  • “And they should study their potential target markets to micro-target discreet customer and prospect segments to further enhance profitability.”

About the Luxury Consumer Tracking Study: These findings are based on Unity Marketing’s most-recent quarterly luxury tracking study which surveyed 1,161 luxury consumers (average income $210,700; average age 43 years; 34% male and 66% female).


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