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A lot can happen in nine quarters. A housing boom can turn into a housing
bust. A law and order governor can get caught with his scruples missing. And
buyers of luxury items can decide it’s time to do time at Costco.
In nine quarters the “Luxury Consumption Index” fell from an all-time
high to an all-time low.
As of Q4 2005 the index stood at 104.8, but by Q1 of this year, it came
in at a measly 54.4. The index doesn’t measure actual luxury purchases like
$2,000 handbags that are almost guaranteed to be the real thing. No, the index
measures how much luxury buyers have on their wish lists. And the lists are
shorter than they used to be.
A whopping 41% of those surveyed planned to spend less over the next 12
months on “luxury.” A mere 13% - primarily lobbyists looking toward the
congressional elections - planned to spend more For the record, these buyers of luxury goods had an average income of
$173,000 and an average age of 45.9, according to Unity Marketing.
Put in more tangible terms, April same store sales for luxury retailer
Nordstrom dropped 3.8% despite an additional shopping day. May same store sales
jumped 11% but June is expected to plunge 22%. So despite its high-end image,
Nordstrom is taking a page from Stein Mart’s playbook. In fact, LA Times
reporter Sandra Jones notes that Nordstrom, Saks and Neiman’s all are cutting
prices and engaging in embarrassingly promotional behavior.
How can this be? Aren’t the rich recession proof?
While there may be more millionaires next door, lots of the millionaires’
neighbors have been buying on credit. In fact, the creator of the Luxury
Consumption Index, “luxury expert” Pamela Danziger, claims that there are
“…more households in the luxury markets today than there used to be.”
But as Nordstrom now knows, more luxury buying households is not the
same as more rich people.
Not by coincidence, the dollar amount of home equity loans granted of
late has plunged like prices of women’s apparel at Neiman’s (a $200 gift
card toward one regular-priced item of $500).
Retail experts are a notoriously polite bunch. Rather than say that
millions of Americans have been buying fancy stuff on credit and are now in a
tight spot, they declare that today’s consumers are more educated. So now,
because they want to, Americans are just as prone to buy a designer label at
Target as Saks. Savvy is the new chic.
As broken down by Sandra Jones, the luxury market for years grew around
10%. But luxury spending rose just 2.8% in April, well below the 3.2% gain
registered by total retail sales which includes the rest of us. Not only that,
Neiman’s isn’t the only store struggling with prices. Prices at luxury
retailers were flat in Q1 compared to a 7 percent increase as recently as 2006.
Jones quotes an official of a
New
York consulting firm who studies consumer behavior.
For the first time in the study’s 15 years, price is the primary driver of
purchase decisions.
How unfashionably practical.
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