Spending in the luxury market did not decline as dramatically as in other markets when the economy soured the past couple of years and has rebounded sooner as the economy has improved, according to data from American Express Co.’s Business Insights research unit.
Business Insights earlier this year examined consumer-spending patterns at more than 700 key luxury merchants in various industries worldwide to identify trends in the luxury-spending market. The unit used in its analysis transaction data from its global network of more than 90 million credit cards and $111 billion in annual luxury spend.
“The luxury market for us is always an interesting segment, and there are lot of questions from our business customers about how the overall economy is recovering and how the luxury market is recovering,” says Ed Jay, AmEx Business Insights senior vice president. “Given how difficult the last 18 months have been, our customers are really interested in finding out when the luxury market is coming back, how the behavioral spending has changed and what it means for the future.”
Spending on luxury items went from a nearly 30% drop during the first half of 2009 compared with the same period the previous year in most regions to an increase of more than 20% during the second half of the year from a year earlier, Business Insights data show. AmEx did not provide specific spend data, only percentage changes.
However, from December 2009 to March 2010, the percentage increases regionally in spending on luxury items rose by just less than 10% to 50%, with emerging economies such as India and Brazil tracking the highest percentage increases. Other regions tracked include North America, Europe and developed Asia.
“December was really a happy month for the whole world,” says Jay, citing the rebound. “Those with less exposure to the U.S. credit market returned to luxury spending quicker.”
Business and consumer travel picked up in the fourth quarter of 2009, signaling an overall improvement in consumers’ and businesses’ views on the economy, he adds.
Interestingly, luxury pure-play online retailers, which do not have stores and are considered a small segment, experienced 87% sales growth in 2009 compared with the previous year, despite the difficult economy. Some factors contributing to the growth in pure-play sales are increased Internet penetration, lower overhead, adoption by consumers around the world, as well as how easy it has become to purchase goods online. “It seems the recession may have created an opportunity for many online luxury pure-play companies to make inroads, or at the very least accelerate their growth,” says Jay.
Merchants should watch is the ambitious spender group, the largely male rising professionals who make $200,000 who may not have much savings but will continue to grow earning power, Business Insights suggests. By comparison, the seasoned spender–the traditional female luxury spender 55 and older who earns $200,000 or more in annual income–and the core spender–predominantly females ages 45 to 54 who earn $125,000 to $175,000 per year–have lost money in their retirement funds because of the economic crisis and have limited increased earning power, according to Business Insights.
The ambitious spender is the fastest-growing demographic in terms of luxury spending and was more resilient during the economic downturn than other spenders, according to Business Insights. Consumers in that group decreased their spending at a lesser rate during the recession but also rebounded more dramatically, 18% from December 2007 to December 2009, compared to seasoned and core luxury spenders, which rebounded only 9% and 12% from December 2007 respectively, Jay says.
Many of the top brands purchased by the three luxury spender groups in 2007 dropped from the list of top 100 brands in 2009. Business Insights did not name the brands.
The ambitious spenders appear the least likely to be committed to a luxury brand, as the group dropped 16 brands from its top-100 list, compared with only 10 and 7 brands dropped by core and seasoned spenders respectively, Business Insights data show.
Ambitious spender are more open to brand experimentation, and the time may be right for those luxury retailers to reach out to this group, the AmEx unit suggests.
