Luxury spending is on the rise, but apparel isn’t feeling the love.
The country’s richest consumers will drive luxury spending up between 6 and 8 percent this year, according to a survey of affluent Americans conducted by American Express Publishing Corp. and Harrison Group, but apparel is unlikely to benefit. Apparel spending by these consumers has recovered somewhat, but continues to slide, falling 5 percent in the first quarter and 4 percent in the second quarter. By comparison, apparel spending by this group slid 8 percent during the fourth quarter of 2008 and 9 percent in the first quarter of last year.
This story first appeared in the July 22, 2010 issue of WWD. Subscribe Today.
Overall spending by the most affluent 10 percent of the U.S. population is expected to surge $56 billion this year versus 2009, and half that amount is expected to go toward the purchase of luxury products.
Harrison Group vice chairman Jim Taylor told WWD at a Luxury Marketing Council presentation in New York Wednesday that apparel spending is generally discretionary and not a necessity. “It has become an event-driven business,” he said. “Still, I think it will be a pretty good Christmas.”
The survey polled 1,910 respondents from households with incomes representing the top 10 percent of the American population. These consumers collectively account for 50 percent of all retail sales and 70 percent of all retail margins. This group also holds about 80 percent of all non-retirement account assets.
Despite the positive news, Taylor said luxury recently hit “an inflection point” and began “trending down” as the Dow Jones Industrial Average started falling. Typically, the stock market is an indicator of luxury spending, and the volatility could forecast a double-dip recession, something that has “given us the creeps,” according to Taylor.
“Aspirational wealth in America is gone,” he said, explaining that, with or without a double dip, the economic landscape has fundamentally changed.
Even wealthy consumers have become more “resourceful” in seeking out the best deals and “more independent” in general, added Cara David, senior vice president of corporate marketing and integrated media at American Express Publishing.
Clothes may matter less, but happiness matters more to those with discretionary incomes in the $125,000-to-$500,000-and-up category. David said the affluent have placed a greater emphasis on their personal lives.
“Success is now more about the lives they are living than the living that they are making,” she said, adding that this consumer is spending more time with family and friends, and appears to be more grounded.
“We look a lot more like an Italian family now in terms of how we talk and relate to each other,” Taylor said, explaining that this phenomenon is part of a larger shift within the consumer psyche that luxury retailers need to address.
“These individuals are purchasing because they’re happy. They’re not purchasing to become happy,” he said. “Retail therapy is dead — shopping is not the solution to the problem of unhappiness. It is an expression of goodwill and happiness.”
As if to dramatize the tentative nature of the recovery in the U.S., the S&P Retail Index fell 1.7 percent, or 6.71 points, on Wednesday to 393.15 following Federal Reserve chairman Ben S. Bernanke’s testimony to a Senate committee, which detailed a continued slog out of the recession.
Bernanke said the job market would remain challenging with the unemployment rate, currently 9.5 percent, expected to improve to 7 to 7.5 percent by the end of 2012. Real gross domestic product is expected to expand 3 to 3.5 percent this year and pick up to a growth rate of 3.5 to 4.5 percent in 2011 and 2012.
Descending quickly after Bernanke’s remarks, the Dow Jones Industrial Average fell 1.1 percent, or 109.43 points, to 10,120.53 after a generally positive day in global markets. The FTSE 100 in London and the Hang Seng Index in Hong Kong perked up more than 1 percent and the CAC 40 advanced 0.8 percent in Paris. The Nikkei 225 fell 0.2 percent in Tokyo.