Trouble Ahead For ‘Recession-Proof’ Luxury Market?
Looks like the U.S. luxury market, which kept chugging along throughout 2008, may finally be derailed. From the Chicago Tribune’s Sandra Jones on June 21:
When do you know that the economy is on the mend?
When the wealthy start spending again. And the rich aren’t expected to start digging into their Birkin bags anytime soon.
The luxury market, historically resilient to economic downturns, is forecast to drop an unprecedented 10 percent this year, according to a June report from Bain & Co. The Boston-based firm predicts purveyors of luxury goods won’t experience a full recovery until 2012.
Keeping an eye on the spending of the rich is a favorite American pastime. But it is also key to the economic recovery, said Ron Kurtz, president of the American Affluence Research Center.
The richest 10 percent of U.S. households account for as much as 50 percent of consumer spending, according to the center’s calculations, based on Federal Reserve Board data. Consumer spending, in turn, accounts for about 70 percent of gross domestic product.
“The affluent market is a leading indicator of what’s to come,” said Kurtz. “Given their losses in the value of their homes, investment and savings that they have experienced over the past two years, the affluent are likely to be conservative spenders until these losses have been largely recovered.”
Some ask if there is something else causing rich Americans to pull back on spending. Jones wrote:
One school of thought is the notion that well-heeled shoppers are holding back because they are self-conscious about their wealth in the midst of a deep recession, a trend pundits label “luxury shame.”
The American Affluence Research Center found that 90 percent of the most affluent households have always avoided ostentatious consumption and are “careful spenders and aggressive savers.” Their spending habits aren’t expected to change anytime soon.
The center’s spring 2009 survey found that 68 percent of the respondents have no plans to make any of the following major expenditures in the next 12 months: a car, cruise, boat, new home, vacation home or a home remodel project. That is a record high, as well as a marked jump from 53 percent in spring 2008 and 36 percent in spring 2005.
While the recession was well under way in 2008, luxury spending held up until the financial markets collapsed last fall.
As a result, writes Jones:
Now, glitzy shopping streets from Madison Avenue to Rodeo Drive to Oak Street are dotted with empty storefronts and sale signs…
Source:
“Luxury spending likely to drop 10 percent for 2009”
Sandra M. Jones
Chicago Tribune, June 21, 2009
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