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Luxury Consumers Personal Confidence Rises In Fourth Quarter But Consumers Spend Less On Home

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Luxury consumers’ confidence was mixed at the end of 2004 and beginning of 2005. While luxury consumers (average income $136.5k) felt positive about their personal financial status and spent more on luxuries in the fourth quarter 2004, they expressed strong doubts on the financial well-being of the economy as a whole, according to the latest statistics compiled by Unity Marketing. Luxury consumers’ conflicting feelings held down the Luxury Consumption Index to 95.6 points for the fourth quarter 2004. That represents a .4 decline from the third quarter and a 7.1 point drop from 2004’s high of 102.7 at the end of the second quarter. The Luxury Consumption Index, compiled by Unity Marketing, measures the luxury consumers’ feelings and attitudes about their financial well-being. At the start of 2005 luxury consumers feel positive about their personal finances, but they are dubious about the economy as a whole. “Overall, luxury consumers feel their financial status today is better off (39 percent) or about equal to (46 percent) the way it was three months ago. Moderating their positive personal outlook is weakness in their view of the country as a whole. Only 26 percent believe the country as a whole is better off,” explains Pam Danziger, president of Unity Marketing and author of Let Them Eat Cake: Marketing Luxury to the Masses — as well as the Classes. Commenting on this quarter’s Luxury Consumption Index, Thomas Bodenberg, economic forecaster for Unity Marketing and former Conference Board executive says, “Overall, the demand for luxury goods and services looks good in the short-term. However, the outlook for intermediate-term (beyond six months) looks cloudy due to two factors. One is the uncertainty engendered by the Bush budget, especially the tax outlook. Second, increasing mergers and acquisitions activity in such arenas as telecommunications and pharmaceuticals give an uncertain employment outlook for thousands of highly-paid executives and administrators in the affected firms. We feel this is reflected in the data.” Luxury consumer spending is up in experiential luxuries Luxury consumers’ worry about the future did not impact their luxury spending in the fourth quarter 2004, with luxury spending up 12 percent overall. While luxury consumers spent less on their home in the fourth quarter, they kept up a steady pace in buying personal luxuries, including fashion, fashion accessories, jewelry and automobiles. But the biggest growth was tracked in spending on experiential luxuries, including fine dining, travel, beauty services and home services, up 19 percent over spending in the third quarter. “As the luxury consumers continue to focus their spending on experiences, this is the category where the most robust growth is predicted for 2005-2006. “It is also in spending on experiences where the real differences in levels of affluence are measured. The super-affluent consumers (incomes of $150k and above) increased their spending on experiential luxuries by 66 percent in the fourth quarter and they spent more than two-and-one-half times more on experiences during the period than the luxury consumers one rung down on the affluence ladder (incomes $100k to $149.9k),” Danziger explains. Real affluence today is measured not by what you own, but by what you do and where you go In the luxury market today what separates the truly wealthy from the merely rich is not the places they shop, clothes they wear, the cars they drive or the way they decorate their homes. “The playing field in material luxury goods has pretty well been leveled. Today true affluence is measured in the intangibles. It is about where you vacation, where you dine, the shows you see, the spas you visit. Super-affluents who spend so much in all aspects of luxury, spend even more on experiences where one’s feelings are paramount,” Danziger says. Unity Marketing’s benchmark index of luxury buyers is calculated from a sample of over 700 upper-income households throughout the United States. This panel, with household incomes over $75,000 (about one-third $150,000 or more) represents one of the largest longitudinal studies of high-end luxury consumption of goods and services. Panelists reported purchasing behavior of luxury goods and services over the past three months, as well as attitudinal and expectation data about luxury brands and categories, their households and the health of the economy in ge! neral. Unity Marketing publishes its Luxury Tracking Study quarterly with the next due in March 2005. For more information, visit here or call Pam Danziger at 717-336-1600.

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