The State of Luxury Retail

What better time than the beginning of Mercedes-Benz Fashion Week to check the pulse of the luxury retail market? American Express Business Insights, a global information, analytics and consulting organization, hosted a special session earlier this month at New York's Lincoln Center to share its research findings on luxury e-commerce, consumer segmentation and other trends in high-end retail.

According to AEBI's findings, shoppers in Generations X and Y increased their luxury spending throughout the recession, while baby boomers scaled back their spending on high-end goods. What's more, prior to the economic downturn, online spending was essentially flat, said Edmond Jay, senior vice president, AEBI. The recession served as a "catalyst" for increased luxury spending.

"People who were not spending on luxury decided to spend on it after the recession," explained Jay. "They are the reason for growth from 2010 and onward." And perhaps in a strong signal of confidence in the economic rebound, these newcomers to the luxury market are spending more without scaling back on other purchases. One trend of note: luxury shoppers purchase less frequently but spend more when they do, said Jay.

AEBI found that during the Great Recession consumers weren't "trading down" for lower-priced goods – they simply stopped spending on certain items or in certain categories altogether. Even more significant, shoppers remained loyal to their favorite brands. Jay emphasized the prominence of the "barbelling" phenomenon. Consumers gravitated to both ends of the barbell – either high-end luxury or bargain-basement value – while ignoring the middle: mid-tier price ranges. Jay explained, "Customers were saying, 'I want something really special, but don't want to pay for mid-range.'"

Although the market has seen several brands launch luxury offerings for the first time, many of these brands aren't catering to new customers, Jay said, adding that 95 percent of marketing dollars are spent catering to existing customers. And while many high-end brands began offering "more accessible price points" during the recession, full-price e-commerce is the fastest-growing luxury segment now, added Jay. Gen X and Y shoppers are the fastest-growing segments of spenders in both full-price bricks-and-mortar and full-price e-commerce.

In the 12 months following the recession, Gen X and Y consumers comprised 30 percent of the spending but accounted for 60 percent of total shoppers. "They don't spend as much per ticket as established customers, but there's a lot of them," Jay said. He doesn't believe Gen X and Y shoppers will be quite as loyal as entrenched brand aficionados. "The younger generations experiment more," he added. "Gen X brand preferences aren't set."

A senior moment
Among AEBI's most surprising findings: seniors are driving growth in online luxury flash sales spending. During 2011, these shoppers outpaced all other classes of consumer, accounting for 28 percent of spending growth in private-sale ecommerce, compared to Gen Y at 19 percent, Gen X at 12 percent and baby boomers at a meager 9 percent. Overall, the extraordinary growth in luxury flash sales is slowing down – but still growing, added Jay.
While seniors increasingly shop luxury online, they're choosing to skip trips to the mall. Their spending on bricks-and-mortar premium apparel declined by 1 percent in 2011, compared to 2010, according to AEBI.

Men are mad for luxury
Not surprisingly, Gen X and Y women constitute a "very healthy" 63 percent of spending on aspirational brands, said Jay. However, baby boomer men account for nearly 30 percent of luxury spending. "Men got exposed to luxury when prices came down during the recession," explained Jay. "Now there are more brands just for men and unique men's lines. There's more for men to buy."

Luxury retailers are expressing a greater interest in understanding how incentives impact their operations. "How does free shipping affect spending? How does a loyalty program affect my business?" Jay said, adding that some AEBI retail clients have asked the company to research these and similar issues.

All eyes on Europe
The 2012 holiday shopping season yielded mixed results in Q3 and Q4, and "the volatility in Europe has a ripple effect on consumer confidence in the U.S.," said Jay. "The Eurozone issue will linger in the mind of the consumer.

"Consumers are asking themselves, 'Should I be spending the same way in 2012 as I did in 2011?'" added Jay.

Jessica Binns is a freelance writer based in Washington, D.C.

This ad will auto-close in 10 seconds