By  on July 9, 2008

The mind-set, shopping and spending habits of luxury consumers are fast changing.About one in five affluent Americans is turning away from indulgence and towardless materialism, as they express commitment to values like sustainability andcontentment with buying good products instead of the best.

This newly spotted breed — dubbed "temperate pragmatists" byUnity Marketing president Pamela Danziger — could put a dent in second-halfluxury business in the U.S., consumer researchers forecast, citing the group'srising social consciousness, professed guilt about indulging in tough times,and diminished cache of money to burn. It's not unlikely such a downturn couldextend into 2009.

People with annual household income of at least $100,000, the top 18 percentof the country's earners, have already curtailed spending this year. Their averageoutlays for luxuries fell 9.5 percent in the first quarter, to $13,894, comparedwith $15,354 a year earlier, according to a new Unity Marketing study, "TheComing Luxury Drought."

"Temperate pragmatists are saying 'enough already — we're drowningin our material excess and starting to feel guilty about it,'" Danzigersaid in an interview. "This is a real change to a caring culture from aconsumer mind-set of he who has the most toys when he dies, wins. I'm quiteconfident this is a paradigm shift in the culture."

The temperate pragmatists emerged from a group of 1,258 luxury consumers surveyedby Unity Marketing in April, and are estimated to represent 22 percent of thecountry's affluent population — defined as households with six-figureincomes or more. On average, they're 45 years old and have annual householdincome of $173,400.

The inclination of this set to acquire fewer prestige goods is being fed bytheir eroding personal finances as well as their evolving personal values. Theirassets are being zapped by the bear stock market, diminishing home equity andgasoline averaging $4.11 a gallon Tuesday, up from $2.97 a year ago. There'salso unease about the effects of the dimming U.S. employment picture, underscoredby the Labor Department's sixth straight monthly report, in June, showing morejobs lost than created and 1.5 million more people out of work than a year ago.

In such a time, many of the well-off are passing on a wide range of pricy indulgences,from salon and spa services like hair color treatments and massages, to big-ticketpurchases of yachts, private jets and jewelry. A June 18 American Pulse Surveyon coping with the ailing U.S. economy found a representative group of 500 adultswith household income of at least $100,000 were postponing hair cuts (18 percent),manicures-pedicures (15 percent), massages (11percent) and hair-color treatments(11 percent).

It's not just the six-figure earners who are feeling squeezed. Millionaireswith assets of less than $100 million have become "very sensitive"about their financial standing, said Milton Pedraza, chief executive officerof the Luxury Institute.

"A lady living on Park Avenue said to me that even people with a net worthof $25 million are nervous," Pedraza recalled. "Last year, [wealthy]people said a decline of 10 to 15 percent in their net worth would prompt themto spend less on luxury. There's no question we're there. There's a holdingback across the board."

Although no one is suggesting prestige products will lose their luster, people'sexpectations of them are quickly changing. The more practical among affluentshoppers are indicating a willingness to forgo prestige products and are findingsatisfaction in things they consider to be good or premium items — say,investing $345 in a Dooney & Burke handbag, rather than sinking $1,500 intoa Dolce & Gabbana bag.

"This is a time when consumers discover either they can or cannot livewithout a product or a brand," said Carol Davies, a partner in innovationconsultant Fletcher Knight. "The question is 'to what extent can I shavethings off around the edges, before I stop?'"

For example, almost 100 of the 240 six-figure earners Roper Reports polledin the first quarter said they were decreasing purchases of luxury apparel,accessories and footwear. Just 10 of the affluents told Roper they weren't cuttingback and the rest said they don't buy luxury fashions at all.

"It's something people can make do with," Jennifer James, a seniorconsultant at GFK Roper Consulting, said of existing wardrobes, "whereasthey can't live without food and they still have to drive the kids to school."

In March, Unity Marketing's monthly Luxury Consumption Index hit a three-and-a-halfyear low of 54.4, compared with a high of 113.2 in March 2006. That declineoccurred despite the growth of households with annual income of at least $100,000that has been coming faster than any other segment of households grouped byincome, according to the 2006 Census. The latest income data from the 2007 Censusis due in September.

The luxury consumption index measures people's plans to spend on luxuries,their confidence in the U.S. economy and their feelings about their own financesin the previous three months, among other things.

Amid the pullback, luxury purveyors should focus their marketing messages onproduct quality and brand heritage, "like the appropriateness of a Chanelhandbag forever," rather than focusing on image, Danziger suggested. "Theluxury industry has gone too far in focusing on image over substance,"she contended.

"Everybody is reexamining their lives to see what can go," said socialcritic and best-selling author Barbara Ehrenreich, who has just published "ThisLand Is Their Land: Reports From A Divided Nation" (Metropolitan Books:$24). "This is unlike anything I've ever experienced, this feeling we reallycan't count on anything, no matter how secure we felt a few months ago."

Recalling her conversations with Americans about the growing divide betweenrich and poor, Ehrenreich noted those with incomes of $100,000, as well as thosewith a range of incomes are thinking about "living more simply." Forinstance, some have said, "I can buy nice clothes from the consignmentstores."

The author herself recently gave up a French wine, Sancerre, "a crisp,dry white wine" she considered "a treat" until its price roseto $20 a bottle, from $16, last Thanksgiving. "I looked at it in the store,"she said, "and I thought, 'naaaw.'"

Top Six Reasons For Consumers??? Luxury Fashion Cutbacks

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