Consumers' Less Lavish Return to Luxury

Luxury is back, but with some caveats. For one thing, affluent consumers are less inclined to scarf up such big-ticket discretionary toys as sports cars and full-priced jewelry than they were before the recession.

Post-recession luxury consumers are, in fact, more pragmatic, per a new study by market research publisher IBISWorld, which finds that the wealthy are looking for practical luxury. 

IBISWorld expects certain industries to benefit from this more subdued mien, and to generate more than $1.5 trillion in revenue in 2012 because of it.

The study says that the consumer sentiment index, which measures consumers' feelings about current and future financial stability, fell 25% in 2008 and that it hasn't really recovered.

"Consumers will continue in their budgeting ways. Luckily, there are a slew of options available for the price-conscious indulger," says the study. Benefitting from this will be daily-deal sites and channels like Gilt.com, HauteLook.com and RueLaLa.com that offer steep discounts on designer apparel, accessories and shoes.

Another beneficiary will be the day-spa and nail salon business, which, per the firm, is stealing traffic from high-end health spas. "Instead of dedicating a large portion of their discretionary incomes to a traditional destination spa experience, consumers have increasingly turned to local day spas and nail salons as a way to pamper themselves on a budget," says the study, pointing out that day spas and nail salons have expanded in metropolitan areas and suburbs over the past five years.

Players in the segment are also expanding their experience offerings to benefit from the trend. "For example, hair salon Drybar provides women with $35 blowouts, saving them from having to make a much more expensive trip to an all-inclusive hair salon," says the firm.

Health consciousness is also becoming a luxury driver because of the increase in health consciousness and knowledge of genetically modified foods and pesticides. Luxury consumers are buying organics from grocery stores and farmer's markets.

"It is definitely a luxury since organic goods are significantly more expensive than conventional produce in most locations," notes the study, quoting Rodale Institute data that in Los Angeles a 48 count of green onions costs $48 for organic and $10 for conventional.

The organics boom is also benefiting supercenters and grocery stores with companies Kroger and Walmart increasing their organic offerings just to satisfy customers. High-end reusable grocery bags, expensive natural cleaning products and eco-friendly clothing are also more popular with wealthy Americans.

"In order to be eco-friendly, though, you have to have the money for it: Eco-friendly goods are typically more expensive than comparable conventional products due to their more expensive raw materials."

IBISWorld says gym memberships and fitness classes are also seeing increases in business because of the same trend. The firm says that since memberships are often pricey, participating in such activities indicates an elevated level of wealth.

"Consumers must also have time to spend on fitness and free time can also be a symbol of affluence. As a result, fitness is a luxury people are willing to splurge on," the study says.

(Source: Marketing Daily, 06/27/12)