Contrary to assertions by some luxury market and retail consultants that the current economic problems are creating longer term changes in their lifestyles and reductions in spending on luxury and conspicuous consumption by Americaâ€™s luxury consumers, Ron Kurtz, President of The American Affluence Research Center (AARC) believes that â€œmost of the affluent are behaving like their normal, rational, and frugal selves. Their careful spending is not a new trendâ€.
While the concepts of â€œstealth wealthâ€ and â€œluxury shameâ€ are now being advanced by the retail and luxury consultants and futurists through anecdotal research about cut backs in the spending on ostentatious luxury, Kurtz feels â€œthe sale of luxury goods and services, as defined by the majority of Americaâ€™s affluent, is not subject to much change in 2009, just as it has not shown much change over the past 30 yearsâ€.
Kurtz bases his opinions on AARCâ€™s ground breaking research on the definition of luxury among the affluent. The respondents to the AARC survey of the wealthiest 10% of US households were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.
The profile of the 552 affluent men and women in the national survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.2 million average value of their primary home. The average age is 55 while 86% are married and 60% are males.
Kurtz emphasized that he â€œdoesnâ€™t see any evidence that the majority of the affluent are showing major long term trend changes in their spending patterns and attitudes. They have never been ostentatious or conspicuous consumers. They have always been careful shoppers and savers who look for quality and value in their purchases, the brands they buy, and the stores where they shopâ€.
The affluent market in the US is cutting back and deferring expenditures, according to AARC research inÂ 2008 and 2009, due to current economic conditions, especially given the reduced values of their homes and stock portfolios. However, these expenditure changes should not materially affect the sales of the high end products and brands normally associated with ostentatious â€œluxuryâ€ because most of the people in this market have not represented a substantial source of the sales of such products. â€œThey will not suddenly be switching from Manolo Blahnik to Stuart Weitzman shoes, from Prada to Coach purses, or from Four Seasons hotels to Marriott,â€ according to Kurtz, â€œbecause they were not supporting those brands previouslyâ€.
The sales of the high end â€œluxuryâ€ products appear to be derived primarily from international â€œnew richâ€ consumers and by the small segment of the wealthiest 1% in the US, as indicated by the AARC research.Â A portion of the sales have apparently also been derived from those stretching their resources (especially their credit) to achieve a taste of luxury.
Kurtz believes â€œa segment of the small niche market of conspicuous American consumers will have to change their spending and saving behavior. The Wall Street investment bankers, attorneys, and others in related activities are experiencing large reductions in income and net worth. Many of the younger people in this group donâ€™t have substantial net worth to fall back on, as they were spending what they were making and perhaps even moreâ€. Kurtz observed that changes in the spending of these people, as well as among the wealthy â€œnew richâ€ citizens of the BRIC (Brazil, Russia, India, and China) and other countries now experiencing recessions and declines in oil and commodity prices, will contribute to the decline in sales of the ostentatious â€œluxuryâ€ brands.
Concepts such as â€œdiscreet luxuryâ€, in Kurtzâ€™s view, are creations of some retail and luxury consultants who invent terms such as â€œmass affluentâ€, which he considers to be an oxymoron, to promote new consulting work. In his opinion, â€œsome of these consultants are prone to invent such terms to describe changes in behavior among a small group of people as major trends. These trend projections are often based only on anecdotal or â€œmanagedâ€ researchâ€.
For a more detailed summary of the findings of this research and its implications, visit our blog post at AffluenceResearch.org entitled “Popular View of Luxury Spending Debunked in Survey of the Wealthy.”