Although affluent consumers have been conserving cash rather than spending it on luxury goods in recent months, there are signs that the market for high-end items is leveling off before it recovers, according to a poll by Unity Marketing (Stevens, Pa.).

“By all measures, the luxury consumers continue to pull back,” said Pam Danziger, president of Unity Marketing. “The Luxury Consumption Index dropped to 51 points, its historic low since Unity Marketing started tracking affluent consumer confidence at the close of 2003. Luxury consumer spending also continued to retreat, down 5.3 percent in the second quarter 2008 as compared with the previous quarter, and down 19.7 percent when compared with the same period last year.”

According to the poll, spending among ultra-affluent consumers—those with incomes of $250,00 or more—declined the most in the 2008 second quarter, both when compared with the previous quarter and the year-earlier quarter. Thus, the decline in luxury consumer confidence and spending that started in the middle of 2007 continues.

“In [the second quarter] survey, we see definite signs that the worst is almost over and luxury consumers will start to recover in terms of spending,” said Danziger. “We predict that the consumer market for luxury will start to feel new life by the end of the critical fourth quarter, which is so vital for America’s retailers.”

“We see light at the end of the tunnel for luxury marketers,” said Tom Bodenberg, consumer economist for Unity Marketing. “Cause for optimism is the fact that the rate of decline in the Luxury Consumption Index from second to first quarter 2008 was substantially less than that from fourth 2007 to first quarter 2008, as well as less than the drop from third quarter to fourth 2007. We take this to mean that the lack of confidence has now fully diffused so that the luxury marketplace has reached a floor, and that demand will start to recover.”

“Now is the time for luxury marketers to start to build excitement for their brands by picking up the pace of new product introductions and more aggressive branding campaigns,” Danziger said. “As the tide starts to turn, marketers that are out in front of the shift can take advantage of greater exposure to luxury consumers as their more cautious competitors take a lower profile and pull back in terms of advertising and branding. Unity believes and the data strongly suggests that the affluent consumer will start to feel renewed confidence, most especially after the November election.

“Innovation is called for now,” she continued. “Affluent shoppers simply don’t need anything else, since they have plenty of stuff filling their closets, attics, basements and garages. What they need is a new and powerful reason to shop.

Luxury brands that give reluctant affluents a reason to buy now will benefit. And that reason shouldn’t be discounts or sales, but innovative, new, fashion-forward and exciting products that will delight and excite the customer. These efforts must be backed up by advertising and branding messages that underscore quality, workmanship and value of the brands, so that the affluent consumer, who still has plenty of money but a reluctance to spend, can make a wise investment in their purchases.” [October 2008 PET AGE]