30-day Challenge – Day 18

The spending power of luxury the luxury consumer is strongly tied to developments in the global economy and the performance of major stock indices. As the DJIA climbs and dips, you will see wallets open up and clamp shut. However, in recent times, luxury consumers are showing a very unique spending pattern

American Express (AEXP) recently released its Business Insights report discussing the spending habits of luxury consumers in Q3 2011. The company highlights a new trend of selective luxury spending among both consumers and businesses. Ironically consumers are more apt to splurge on certain products and services compared to others.

Luxury vs. Value

Rather than asking themselves if they want an item bad enough, luxury consumers are now pondering the balance between value and luxury. Recent trends show that consumers are willing to spend more on airline flights, and pare down their purchases of luxury accommodations such as hotels and resorts.

I guess you could say that the uncertain economic headwinds plaguing consumers is forcing them to think more about the utility and marginal benefit of purchases they would have typically made without hesitation. Below are some bullet point notes to take when from the AMEX study:

• More First Class, Less Business and Coach: Sales of first class tickets in the US went up 9.6% in Q3 2011, while spending on mid-priced lodging went up by 41.6%.

• Larger, but Less Frequent Retail Shopping: Average transaction amounts in the jewelry sector went up 9.2%, while overall jewelry spending went up only 2.4%. In fashion and apparel, average transactions increased 11.3%, while spending only moved up 0.3%.

Taking the Fun and Games Inside

AMEX reports that consumers are becoming more penny-wise opting for less expensive ways to entertain themselves. Total indoor entertainment purchases for activities such as bowling increased by 8.9%, while outdoor entertainment spending dropped. As far as their gastronomic pursuits are concerned,  consumer spending saw an across-the-board decrease (fine-dining down 5.5%; casual dining down 8.2%; and quick-service  establishments down by 1.3%). The above reinforces AMEX’s assertion that consumers are thinking more about the balance between value and luxury.

Spending Led by Younger Consumers in Metropolitan Cities

As far as spending demographics go, younger purchasers lead all other age segments.

Most notably, young adult affluents in Los Angeles increased lodging spend by 34% and young adult moderates in San Francisco posted a 24% uptick on home furnishings. Retail shoppers in New York City decreased transaction volume while increasing transaction size, mirroring the national trend of spending on big-ticket fashion items.

Without the exact figures, the findings of the AMEX study don’t seem far from what most of us may be experiencing today. The data becomes actionable when MBAs like myself start to think about where jobs in the luxury sector reside in good and bad times.