Last spring, the recession had spread from lower-income and average-income consumers to the ultra-affluent demographic. According to one report, sales of luxury goods with price tags ranging from $10,000 to $25,000 (think Swiss watches and gems) dropped by 40%. This drop surprised analysts who long believed that the most affluent consumers were “generally seen as impervious to recession.” Part of the market contraction was linked to an average 20% drop in the net worth of consumers in this demographic. Another part of the problem, analysts worried, was that these consumers no longer equated price with luxury or believed that flaunting expensive items was in poor taste.
These analysts may have been too pessimistic. A new study from Unity Marketing indicates that the ultra-affluents started spending again during the third quarter of 2009 which bodes well for the upcoming holiday season. Consumers with average household incomes of $250,000 or more bumped up their spending on luxury goods and services by 29.4% between the second and third quarters of 2009. Categories that fared particularly well include:
- Home luxury goods
- Experiential luxuries
- Travel and dining
Ultra-affluents comprise 2.5% of all U.S. households. Affluent families, or those with incomes ranging from $100,000 to $149,999, make up about 20% of total households. For now, Unity Marketing notes that the spurt in spending is limited to ultra-affluents and their chief economist Tom Bodenberg predicts that “the downward spiral … that began in mid-2007 has bottomed out, and there are signs of a long, slow, but steady haul upward."
It’s too soon to know exactly what ultra-affluents will be buying this holiday season. As a benchmark, HNWI (high net worth individuals) allocated their ‘passion investments’ as follows in 2008:
- Luxury items such as boats and jets: 27%
- Art items: 25%
- Jewelry, gems, watches: 22%
- Coins, wine, antiques: 12%
- Sports teams, sailing, race horses: 7%
- Miscellaneous: Memberships, guns, musical instruments: 7%
For the upcoming holiday season, marketers can once again successfully target the ultra-affluents. While small in number, this group has begun to open its collective wallet.[Sources: Luxury feels the pinch, Haute Horlogerie, 2009; Novellino, Teresa. Study: Utlra-affluent return to luxury spending, National Jeweler, 10.20.09]