Spending on luxury experiences, including travel, dining, entertainment, spas and beauty services and home services, nearly doubled, from an average of $11,632 in 2004 to $22,746 in 2005 — a 95.5 percent increase. The average amount spent on luxury automobiles, a low purchase incidence category as compared with the others, also rose in 2005, up 18.5 percent to $42,696. (Note: the category averages don't total $52,588 because not all households buy in all categories.)

For luxury goods marketers and retailers the challenges for the future are daunting in the face of this trend toward experiences — Luxury consumers are spending more, in many cases lots more, on life-changing experiences, while their need for luxury goods is waning.

Now that the baby boom generation (which makes up 57 percent of all households with incomes of $100,000 or more) is turning 60, they have already acquired the material trappings of luxury. Buying another mink coat, diamond necklace or designer handbag just doesn't have the same appeal.

The trend for the future for the baby boomer luxury consumers is toward experiences and this will tip the entire luxury business experiential simply because of the generation's size.

Americans are growing wealthier and feel entitled to spend on luxury

Americans continue to grow wealthier with the average income of all households rising to $60,500 in 2004. There are 30.2 million households with incomes of $75,000 (which Unity defines as near-affluent and affluent) and the average income of that segment is $137,500. At the upper end, there are 1.7 million households with incomes of $250,000 and that segments' average income is $438,338 per year.

As luxury consumers' incomes rise, so too does their spending. Households with incomes over $150,000 tend to spend two-to-three times more in most categories of luxury than those with near-affluent incomes of $75,000-$99,999. But interestingly their purchase incidence of luxury, i.e. the percentage of households that purchase luxuries, is level across all income levels.

Danziger explains, "That means near-affluent households are buying luxuries at about the same rate as super-affluent households, only they are spending less. It's the difference between buying last season's Coach bag in the Coach outlet store as compared with the latest Dolce & Gabbana number at Saks Fifth Avenue. Both are luxurious to the individual consumer.

"That is another key trend in the luxury market today — The consumer is the final arbiter of what is luxury, not the manufacturer, the designer, or the retailer. Consumers at all income levels feel entitled to luxury, whether it is a 'big' luxury like a two-karat right-hand diamond ring from Cartier or a 'little' luxury like a similar-sized Moissanite ring from J.C. Penney's."

About Unity Marketing's Luxury Consumer Tracking Study

Every quarter Unity Marketing conducts a Luxury Consumer Tracking Study among 1,000+ luxury consumers. For the fourth quarter 2005, a total of 1,126 consumers were surveyed with an average income of $139.2k and average age 41.1 years. Year-end 2005 statistics are compiled from the four tracking studies during the year and will be published in Unity Marketing's
Luxury Report 2006 — Who Buys Luxury, What They Buy, Why They Buy