Monday, August 6, 2012

Danziger's Luxury Consumption Index Shows Decline in Confidence of Affluents

Confidence in the country is also slowing

In the third quarter 2012 luxury consumers got nervous about their financial status, causing Unity Marketing's exclusive Luxury Consumption Index (LCI), which measures affluent consumer confidence, to plummet.  The LCI has proven a reliable leading economic indicator not just to the luxury consumer market, but the overall U.S. economy.

Along with the drop in the LCI, luxury consumers cut back their level of luxury spending during the second quarter (April-June) by 8.2 percent from first quarter.  The decline in spending was even more pronounced comparing year-over-year, down 26.9 percent.

Author Pamela Danziger (Putting the Luxe Back in Luxury)  points to the recent quarterly release by leather goods maker Coach Inc (COH.N) as an example of a brand that seriously overestimated HENRY customers' willingness to spend.  Coach tried to eliminate coupon promotions tied directly to its discount outlets, which are the company's biggest source of revenue, and which attract HENRY customers looking to stretch their dollars.  This mistep led to Coach reporting weak same store sales growth in the quarter ending June 30, which then caused its stock to have its worst day on Wall Street since the 9/11 attacks.

"The number of people willing and able to pay a premium for luxury brands, like Coach, is getting smaller as this weak economy continues.  Our latest survey reveals that the affluent consumers believe things are only going to get worse, before they get better,"  Danziger cautions.

In analysis of the latest downward slide in the LCI, Thomas Bodenberg, Unity Marketing's chief consumer economist, explains, "Several months back, market pundits told us that the 2007-2009 recession had run its course, and that it was only a matter of time before this event would have diffused into the consumer economy.  However, this is NOT the case, borne out by consumer sentiment. Two factors are dominant:  first is the interconnectedness of our global economy, as economic turmoil in Europe readily translates into uncertainty here. The second looming factor is the upcoming election, whose results will either drive or inhibit consumer sentiment and willingness to purchase."

Unity Marketing has been calculating the LCI since first quarter 2004 based upon five key measures of luxury consumer confidence including their expectations for future spending on luxury, their personal financial conditions and their overall assessment of the economy as a whole, in surveys conducted every three months among over 1,200 affluent luxury consumers.  This quarter's luxury tracking survey, conducted from July 6- 13 2012, took the measure of 1,271 luxury consumers (average income $274.8k; avg. age 44.8 years; median net worth $817k.)

>>Of special interest to political watchers:
This quarter the measure of the LCI that dropped the most was luxury consumer confidence in the direction of the country overall.  Nearly one-third of the affluents surveyed believe the country is worse off now than it was three months ago.