Affluent Households Will Increase Luxury Spending by 3%

Jim Taylor

PALM BEACH, Florida — Overall spending on luxury goods and services will rise by 3 percent in 2012 among those the top 10 percent of American households, led by the top 1 percent who will spend 4 to 5 percent more than the prior year, according to a recently released survey. This includes a slight increase in the sales of luxury jewelry and timepieces.

“It’s a very healthy increase and will likely be sustained well into the next year,” Jim Taylor of the Harrison Group said Monday at the American Express Publishing Luxury Summit, held at The Breakers.

For the sixth year, Taylor gave his entertaining talk on the state of the top 10 percent of U.S. households based on income in the Survey of Affluence and Wealth in America report. According to the survey, there are approximately 12 million households in 2012 with at least $100,000 in discretionary income that make up the top 10 percent. The study of 1,268 affluent and wealthy consumers tracks the attitudes, lifestyles, luxury category spending patterns and financial services participation in this demographic. Among its findings:

* The total discretionary luxury consumption market for 2012 will be approximately $375 billion and nearly two thirds of all luxury spending will be consumed the top 12 million families.

* The wealthiest consumers in the U.S. are sitting on approximately $6 trillion in savings that could balloon to $12 trillion by 2014, Taylor said during a sunrise meeting with journalists Tuesday. If the holders of these savings start spending, it could bring about “A capital boon in America the likes of which we’ve never seen.” On average, families in the study save 23 percent of their income, which increases to 34 percent among the one percent.

* The most likely investment for all of this money is real estate beginning in 2014 as it is one of the few places where there are still deals available. “A real estate boom is around the corner because there is nowhere else to put the money,” Taylor told the luxury summit attendees Monday.

* What’s stopping the wealthy from moving their savings is their pessimism about the economy. Among those surveyed, 78 percent believe the U.S. is in a recession and 52 percent believe that it will last for a least another year. “What’s driving these people nuts is the pronouncement that everything is okay,” he said.

* A secondary reason why the wealthiest Americans are saving is because they feel their success is under siege from the Occupy Wall Street movement and the political debate over the fairness of the increasing gap between the wealthy and the middle class. About 20 percent of consumers with discretionary incomes at $250,000 and about 25 percent of the one percent are worried about being disparaged for being financially successful. “It is clear that American entrepreneurs and successful people are nervous about the break out of an extraordinary kind of antagonistic class warfare as the election season unfolds,” Taylor said.

* Surprisingly, 75 percent of those surveyed favor a significant tax increase on income but not on their assets, Taylor said.

* Philanthropic spending is closer to home and family than it has been in the past: church, school, healthcare. “There’s a growing abandonment of environmental causes and social causes,” Taylor said. “We are seeing an inclination not to share.”

This complex picture of wealthy households affects how these households view luxury goods and services.

For example, the study is documenting a shift away from value-driven spending with more than 30 percent of respondents skeptical of the value of consumption itself. The survey has defined this as “The Worth Movement.”

“These families can be heard to say about a trip, a dress, an automobile, a piece of jewelry, or even an investment, ‘I know I spent more than I had to but it was worth it,” said Cara David, Senior VP at American Express Publishing, which co-produced the report.

Fundamental worth oriented shoppers (about 19 percent of respondents) are characterized by the following:

* A preference for stores that are elegant (78 percent);
* A desire for the experience of purchasing to be as pleasant as the experience of owning (83%);
* A greater likelihood of having close relationships with a select group of salespersons (36 percent); and
* A belief that it is worth paying more for the very best quality automobiles (76 percent), hotels (73 percent) and jewelry (63 percent).

“What people want is a company that shares their value system and this value system is expressed in the transaction, design and advertising and to the extent that it remains consistent is fluid over time,” Taylor said. “What we’re advocating is you got to find out what your brand means to you.… It’s not enough just to be different.”