SHIFTING Constellations

What will the new, post-recession luxury market look like? And, even more importantly, how can high-end retailers appeal to its refocused consumer?

BY ERINN MORGAN

The turbulent economy has affected consumers at all levels, including the previously bulletproof luxury consumer. In fact, "affluents" (those with household incomes over $200,000) spent nearly 10 percent less on luxury goods in 2008, according to Unity Marketing, a luxury marketing consulting firm.

On a positive note, the market did see slight upward momentum as overall spending on luxury goods and services rose 29.4 percent from second quarter to third quarter 2009. In fact, in all but three of the 22 product and service categories included in Unity Marketing's latest Luxury Tracking survey of 1,067 affluent consumers (average income $228,800), consumers spent more from quarter to quarter.

Before luxury retailers and marketers breathe a sigh of relief, Unity Marketing president Pam Danziger warns that the results show that the sharp rise in luxury spending was driven mainly by those at the highestincome levels ($250,000 and above).

"Affluent consumers at the lowest-income level ($100,000-$149,999) were reluctant to trade up to the luxury level," she says. "This luxury shopper is hunkering down and making decisions based upon saving money. We have found that what people were spending prior to this recession was perceived wealth—they saw the value of their homes and stock portfolios rising and had confidence. Now all that wealth is gone and they are simply back to spending their incomes."

This fact is evident in the overall measure of affluents' consumer confidence, which plummeted from 100.2 in March 2007 to 55.7 in March 2009, according to Unity Marketing. As a result, the psychological effect of the recession has also ushered in a new mindset among luxury consumers—one that Danziger says is here to stay. What is this new attitude?

THE NEW AFFLUENT FACE

At the top of the rewritten priority list for the refocused luxury consumer is a newfound frugality.

"Fundamental changes are taking place," suggests Danziger. "Affluents have become acutely aware that all this consumption is ultimately degrading our future quality of life. Research has shown that once you reach a certain level of living, more stuff doesn't make you happy. As a result, more people are looking to downsize their lifestyles."

Thus, many affluents are looking to cut back on mindless consumption while also saving money and weighing their purchases carefully.

For this group, money-saving strategies will include eating out less frequently, staying out of shopping malls and stores, and performing strategic comparison shopping when they do buy.

This consumer segment is beginning to ask, "What do I need?" versus "What do I want?"

Additionally, their conscience is teaming up with their leadership abilities to help facilitate a dramatic shift from their status as a consuming culture to a sharing, caring culture.

In the end, this consumer is unlikely to pay such high prices again for luxury post-recession. "Even after the economy improves, people aren't going to go back to buying luxury like they used to," notes Danziger.

LUXURIOUS STRATEGIES

How can high-end retailers meet the needs and desires of this new market? A few targeted concepts hit the new luxury mark.

DELIVER THE GOODS: Affluent shoppers are starting to research and ask questions about the luxury brands they once purchased impulsively or without great thought, but many still come up short with compelling reasons to buy beyond simple prestige.

"The new normal in the luxury market is going to be all about delivering new values to the luxury shoppers who control the purse strings—and the fortunes of every luxury brand today," Danziger explains.

Discounts and sales won't be enough, however, to bridge the consumer gap. "Brands and retailers need to align with the new values that more thoughtful, careful, and selective affluent shoppers hold," Danziger says.

GO FOR NET GAINS: Another key strategy retailers can follow is investing in their Internet presence via their websites and by joining in the social media revolution on hotspots like Facebook and Twitter. This is where the luxury customers spend their time today—doing comparison shopping, reading customer product reviews, and purchasing products.

"It's the new luxury frontier," says Danziger. Both retailers and brands will benefit from showing up to the party in an effective way.

GIVE BACK: When seeking new clients, the new luxury consumer has a conscience—and wants retailers and brands to have one as well. This customer is more apt to support retailers and brands that participate in charitable giving, including giving back through purchases, and eco-conscious efforts.

"Luxury is turning inward," says Danziger. "It no longer is an external or outward show of status or wealth, but an inner state of being defined by personal happiness and an outstanding quality of life." EB

LUXURY