U.S. Luxury Market Continues To Boom

The international luxury market continues to generate dynamic revenue growth for the leading marketers. The aggregate results of the 25+ leading global luxury marketers in 2005 show average revenue growth of 10.9 percent. This follows average growth of 14.5 percent in 2004, according to a new study on the luxury market from Unity Marketing. The fastest growing luxury companies in Unity's longitudinal study of the luxury market include Orient Express Hotels, Compagnie Financière Richemont, Coach and Polo Ralph Lauren, all reporting growth of 18 percent or higher in 2005.

U.S. luxury market reaches $1 trillion in 2005

The luxury market in the U.S. was equally strong last year. Unity Marketing estimates the total luxury market to have reached $1,002.2 billion in 2005, up 11.6 percent from $898 billion in 2004. This includes luxury purchases by affluent consumers in the four luxury categories Unity tracks — home luxuries; personal luxuries, like fashion, jewelry, wine and spirits, pets; automobiles and luxury experiences, such as travel, dining, entertainment.

"The key metric Unity Marketing uses to track the U.S. luxury consumer market is the average amount spent by affluent households buying what they perceive of as 'luxuries,'" Pam Danziger, president of Unity Marketing and author of Let Them Eat Cake: Marketing Luxury to the Masses — as well as the Classes explains. "In 2005 the typical luxury consumer spent $52,588 buying luxuries, up 3.8 percent over the average amount spent in 2004 of $50,640.

"But that is only one value that we use to measure of the total size of the luxury market. We also factor in the overall percentage of affluent households buying luxuries and the total number of affluent households which numbers 30.2 million, including the near-affluent consumers (incomes $75,000-$99,999) who occasionally trade up to luxury," Danziger says.

Key trend in luxury — Shift to experiences

In 2005 the dominant trend in the luxury market was a shift in spending more — significantly more — on experiential luxuries; in other words, the things people do rather than material goods one has or one owns. The typical luxury consumer spent $22,746 on experiences in 2005, that is nearly double what they spent in 2004. Luxury consumers also spent nearly 20 percent more buying luxury automobiles, a highly experiential luxury good.

While spending on experiences and automobiles went up, luxury consumers spent less overall on home luxuries, down 4.6 percent to $19,990. Out of the nine product categories classified under home luxuries, only three posted an increase in average spending. They were luxury kitchen appliances and kitchen and bathroom fixtures; kitchenware, cookware and cook's tools; and garden and outdoor luxuries. "In keeping with the experiential trend in luxury, the only home categories where luxury consumers are spending more are the ones that are experiential in that they function and are used in the home, not the purely decorative home categories," Danziger explains.

Spending on personal luxuries like luxury apparel, fashion accessories, jewelry and watches, wine and spirits, pet luxuries and pens and desk accessories, rose 5.6 percent to $10,007 in 2005. A moderating factor in the growth of personal luxuries is that the super-affluent households (incomes $150,000 and above) didn't hold up their high 2004 spending levels, while spending on personal luxuries among the near-affluent ($75,000 to $99,999) and the affluent ($100,000 to $149,999) increased at a significant rate.

Luxury goods hold less allure to the affluent — Life-changing experiences is what they crave

Unity predicts the trend toward experiences will continue to grow as luxury consumers spend more on life-changing experiences, while their need for more luxury goods wanes. "Today's luxury market is less about ostentation and materialism and more about a search for meaning and emotional fulfillment," Danziger says. "While luxury consumers live a very comfortable and materially enriched life, they are well aware that buying more stuff isn't going to give them the real fulfillment they desire."

This is particularly prominent among the baby boom generation (which makes up 57 percent of all households with incomes of $100,000 or more), the leading edge of which turns 60 this year. At that life stage, they have already acquired the material trappings of luxury, so buying another mink coat, diamond necklace or designer handbag just doesn't have the same appeal. But even the GenXer luxury consumers, who are at a more materialistic life stage and who spend proportionately more on luxury goods than boomers, also exhibit an equally strong passion for experiences.

"When we ask luxury consumers about the source of their greatest luxury satisfaction, consistently the majority says that experiences give them the most pleasure. Luxury goods just don't provide the same luxurious feelings. And the more affluent you are, the more value you place on experiences. Luxury marketers, especially those grounded in the traditional luxury goods business, need to understand this experiential shift and develop strategies to turn their luxury goods into a real experience for their customers," Danziger explains.

Contact: Pam Danziger, [email protected] or call 717-336-1600.

About Unity Marketing's Luxury Report 2006

Unity Marketing's Luxury Report 2006 is the definitive study of the luxury consumers' buying and spending preferences, written by Pam Danziger, the nation's leading expert on the 'new luxury' market. This report provides vital market size, growth and demographics for anyone and everyone that sells luxury, from marketers, advertisers, retailers, service providers. The Luxury Report 2006 is an essential tool to understand the dynamics of the luxury market, today and into the future.

This important new study of the luxury market provides the results of a four-year longitudinal research study of the luxury market, which combines qualitative and quantitative methodologies. This report is compiled from detailed statistics collected in eight waves of Unity's quarterly Luxury Tracking surveys during 2004 and 2005. In 2005 over 4,000 luxury consumers were surveyed. The average income of respondents in 2005 was $139,075 and the gender distribution was 65 percent female and 35 percent male. The average age of respondents was 42.9 years, with 47 percent of respondents being Baby Boomers and 38 percent being GenXers.

More details about products and brands included in the Luxury Report 2006.