Economic downturn and the luxury sector

Economic Downturn & Luxury Sectors

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How Does the Economic Uncertainty Change the Luxury World?

The super-affluent and ultra-rich continue to buy their "super-yachts." As of early 2009, after a full year of economic downturn, Edmiston & Co., a premier builder of such luxurious boats, has 30 on order and a waiting list for more (Sullivan, 2009).

"While others around the planet are saving their pennies, this new class of ultra rich consumers, also called the "super affluent," is not afraid to spend 10,000

times the average person's annual income on just one more private jet, yacht, or mansion, and has even been heard dismissing the credit crunch as "some new breakfast cereal" (Sullivan, 2009, para. 1).

According to many of the experts, the only thing that has changed with the luxury sectors is that those buyers who, in the past, purchased luxury items only because luxury brands had offered deals or a bottom line product, will now, not be able to afford them. These customers, for the most part, are lost to the luxury world -- and they were no small part of the luxury business.

The ultra-rich have also become more discriminating. They are more careful precisely what they buy and for how much. Value seems a key word. The luxury market has to find ways to stand out from its competitors. That means either increase production to make product more available, or remain with customer loyalty, quality, and brand value.

The prediction, overall, for the luxury market? By 2012, the super-rich will be buying double what they buy today, given hard economic times or not.

How Does the Luxury Consumer Profile Change?

There is a new luxury consumer mindset. Their basic attitudes and their patterns of consumption are changing. It is thought that these new attitudes will outlast the economic downturn. This new mindset focuses more on value rather than just throwing money after the bling. And this is caused, in part, by the general public's negative attitude in these hard financial times, towards the idea of a "luxury lifestyle." This distaste for "conspicuous consumption" will also outlast the economic downturn -- as will the value mindset of the luxury buyer (Unity Marketing, 2009, para. 8).

How Can the Luxury Industry Manage These Changes in their Customer's Expendable Income?

Research in this area shows mixed results. While some surveys of the luxury market show no impact on expendable income, others indicate a slowdown in the growth of this market's expendable income in certain segments.

In Japan the luxury market decreased by 9% over the past two years. In Europe, however, which represents about 38% of the global luxury market, the industry turned in record growth in 2007. This slowed in 2008, but leveled out in 2009. In the U.S. we saw a 4% growth in 2007, but the luxury market is expected to be flat this year (Krauss, 2008).