America’s affluent are rapidly scaling back their luxury purchases, and apparel and accessories are bearing the brunt of the decline.
According to Unity Marketing’s quarterly Luxury Consumption Index, a survey of spending by those with household incomes of $100,000 a year or more, the wealthy cut the amount they spent on luxury goods and services to an average of $18,374 during the second quarter, 8.2 percent below the first-quarter level of $20,017 and 26.9 percent below the $25,150 spent during the second quarter of 2011.
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On a year-on-year basis, luxury purchasers’ consumption of apparel and accessories were cut by more than one-half. Luxury apparel purchases averaged $1,376 during the second quarter, 26 percent below the $1,860 tabulated for the first quarter of this year and fully 54.5 percent below the $3,022 spent during the second quarter of 2011. The cutback in apparel was the largest of all classifications of goods and services covered in Unity’s interviews of 1,271 consumers with incomes of $100,000 or more. The second largest decline was in fashion accessories, including footwear, which saw a drop of 51.9 percent to $1,499 from $3,119 a year ago. The sequential decline from the first quarter was 41 percent, from $2,544.
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Fragrances and beauty product purchases rose 21.5 percent from the first quarter, to $852 from $701, but dropped 41.2 percent from the $1,450 registered in last year’s second quarter. Year-over-year, jewelry and watches dropped 24.9 and 34.8 percent, respectively, to $4,386 and $3,709, while the sequential declines from the first quarter were a modest 4.9 percent for jewelry and a steeper 35 percent for watches.
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Pam Danziger, president of Stevens, Pa.-based Unity, characterized the affluent as undergoing a new sense of caution after loosening their purse strings in the aftermath of the recession. “What we saw in 2009 was weak, and then a very dramatic uptick in 2010 as people updated their wardrobes and took other steps to address pent-up demand,” she said. “But 2011 fell back to nearly the same levels as 2009. Wealthy consumers are either trading down to less premium brands or shopping at discounters. You can see it in the emphasis that Nordstrom is putting into Rack, the way that Coach has gone back to in-store couponing. The affluent have extra money but they’re reluctant to spend it. They’re still waiting for signs of a sustained recovery, and they’re keeping their eyes on their home values, the stock market and Europe and not all that happy with what they’re seeing.”
Sidestepping the dictionary definition of the term, respondents were asked if they believed the recession is over. Nearly three-quarters — 74 percent — said no, four points higher than in the first quarter and just a point below the year-ago response level. The percentage saying they believed the recession had run its course fell to 16 percent from 19 percent for all of 2011 as well as the first quarter of 2012.
Those earning over $100,000 represent the top 20 percent of U.S. households but their portion of consumer spending on a dollar basis is over 40 percent, a figure that has risen from about a third in the past decade. Spending in this group is dominated by ultraaffluents, those at $250,000 and up, who tend to spend two to three times more than the “lowest affluents,” referred to at Unity as HENRYs — “high earners not rich yet” with household incomes of $100,000 to $249,999.
The HENRYs may pose the biggest challenge for premium brands. In the days before the recession and its immediate aftermath, they were a key component of “aspirational” spending. “They’ve taken a hit to their wealth and earning potential as a result of the recession and ongoing weakness in the U.S. economy,” Danziger said, citing pressure on recent financial results from Coach Inc. and Tiffany & Co.
The average income of respondents was $274,800 with a median net worth of $817,000 and an average age of 44.8 years. The survey has been conducted quarterly since 2004.