Bringing Home Six Figures and Fewer Luxuries

About one in five affluent Americans is turning away from indulgence and toward less materialism.

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 toward less materialism, as they express commitment to values like sustainability and contentment with buying good products instead of the best.

This newly spotted breed — dubbed “temperate pragmatists” by Unity Marketing president Pamela Danziger — could put a dent in second-half luxury business in the U.S., consumer researchers forecast, citing the group’s rising social consciousness, professed guilt about indulging in tough times, and diminished cache of money to burn. It’s not unlikely such a downturn could extend into 2009.

People with annual household income of at least $100,000, the top 18 percent of the country’s earners, have already curtailed spending this year. Their average outlays for luxuries fell 9.5 percent in the first quarter, to $13,894, compared with $15,354 a year earlier, according to a new Unity Marketing study, “The Coming Luxury Drought.”

“Temperate pragmatists are saying ‘enough already — we’re drowning in our material excess and starting to feel guilty about it,'” Danziger said in an interview. “This is a real change to a caring culture from a consumer mind-set of he who has the most toys when he dies, wins. I’m quite confident this is a paradigm shift in the culture.”

The temperate pragmatists emerged from a group of 1,258 luxury consumers surveyed by Unity Marketing in April, and are estimated to represent 22 percent of the country’s affluent population — defined as households with six-figure incomes or more. On average, they’re 45 years old and have annual household income of $173,400.

The inclination of this set to acquire fewer prestige goods is being fed by their eroding personal finances as well as their evolving personal values. Their assets are being zapped by the bear stock market, diminishing home equity and gasoline averaging $4.11 a gallon Tuesday, up from $2.97 a year ago. There’s also unease about the effects of the dimming U.S. employment picture, underscored by the Labor Department’s sixth straight monthly report, in June, showing more jobs 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-ticket purchases of yachts, private jets and jewelry. A June 18 American Pulse Survey on coping with the ailing U.S. economy found a representative group of 500 adults with 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. Millionaires with assets of less than $100 million have become “very sensitive” about their financial standing, said Milton Pedraza, chief executive officer of the Luxury Institute.

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

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

“This is a time when consumers discover either they can or cannot live without a product or a brand,” said Carol Davies, a partner in innovation consultant Fletcher Knight. “The question is ‘to what extent can I shave things off around the edges, before I stop?'”

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

“It’s something people can make do with,” Jennifer James, a senior consultant at GFK Roper Consulting, said of existing wardrobes, “whereas they 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-half year low of 54.4, compared with a high of 113.2 in March 2006. That decline occurred despite the growth of households with annual income of at least $100,000 that has been coming faster than any other segment of households grouped by income, according to the 2006 Census. The latest income data from the 2007 Census is 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 finances in the previous three months, among other things.

Amid the pullback, luxury purveyors should focus their marketing messages on product quality and brand heritage, “like the appropriateness of a Chanel handbag forever,” rather than focusing on image, Danziger suggested. “The luxury industry has gone too far in focusing on image over substance,” she contended.

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

Recalling her conversations with Americans about the growing divide between rich and poor, Ehrenreich noted those with incomes of $100,000, as well as those with a range of incomes are thinking about “living more simply.” For instance, some have said, “I can buy nice clothes from the consignment stores.”

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

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