NEW YORK, March 18th (Reuters) - Conspicuous consumption is back, but luxury goods makers could find themselves with a glut of designer purses and deluxe mobile phones if Americans lose their urge to splurge. Posted on 03/18/2005 3:55:49 PM PST by M. Espinola
NEW YORK, March 18th (Reuters) - Conspicuous consumption is back, but luxury goods makers could find themselves with a glut of designer purses and deluxe mobile phones if Americans lose their urge to splurge.
More companies are rolling out high-end goods -- a market that includes everything from $69 margaritas at Chicago's swanky Nine Steakhouse to $5,500 Viking refrigerators for the well-appointed home kitchen to $30,000 platinum-encased cell phones from Nokia unit Vertu.
One of the most coveted items is DaimlerChrysler's
Products like these are debuting as affluence is becoming more widespread, thanks in part to baby boomers who have reached their peak earnings years. The net wealth of U.S. households hit record levels at the end of 2004, bolstered by rising real estate prices and an improved stock market, according to the Federal Reserve.
But that doesn't guarantee a continued upswing in premium product sales.
A major downturn in the economy could hurt the luxury market. There is also the risk of oversaturation as more marketers pile in, leaving little room for makers of copycat products without strong brand identities.
"There will be intensifying competition because, for obvious reasons, this is a high-margin area -- that's why everyone likes to get in it," said Bill Hummer, chief economist at Wayne Hummer Investments in Chicago. " If there is an oversupply, the margins will drop sharply and some players will withdraw from the market."
Fueling much of the growth are the "mass affluent" -- people who are not super rich, but who enjoy extravagances like $500 suede satchels from Coach Inc. or $690 day spa visits to Mandarin Oriental luxury hotels.
These consumers would probably be the first to cut back on discretionary spending if they lost their jobs or their stock portfolios took a big hit, economists say.
"Luxury is no longer confined to the affluent," said Lynn Franco, director of the Conference Board research group's consumer research center. But if the economy goes downhill, "those at the lower end of the luxury scale might be more impacted."
In the early 1990s recession, sales of high-end treats like Beluga caviar and Cartier watches languished. After the 2000 stock crash and the Sept. 11, 2001, attacks, luxury retailers like Tiffany & Co. Inc. reported sales slumps.
FAVORABLE TRENDS
Barring an economic catastrophe, economists see continued strong demand for luxury goods, propelled by long-term trends such as more women in the work force and smaller families.
Affluent households, with annual earnings of at least $100,000, should number more than 20 million by 2010, up 32 percent from 2004, according to the Conference Board.
Many baby boomers aged 40 to 60 are sitting on ample savings from inheritances, 401k retirement plans and investment income. Soaring home values in many U.S. markets also have helped create a sense of prosperity, with gains from real estate far outpacing those of stocks.
Sales of "new luxury" items, like gourmet foods and high-end hotel visits, could hit $1 trillion by 2010, up from $525 billion last year, according to forecasts from Boston Consulting Group.
Companies benefiting from the boom include European luxury goods maker LVMH and department store owner Neiman Marcus Group Inc. , which has enjoyed six consecutive quarters of double-digit sales increases at stores open more than a year. The retailer said earlier this week it was considering a possible sale of the company.
While more companies may be eyeing the luxury business, the market is getting crowded, said Michael Silverstein, a senior vice president at Boston Consulting Group. He sees Coach as particularly hard to beat in the accessories area, citing the strength of its brand.
"A lot of people are attempting to compete with Coach, but nobody is able to really compete," he said.
Premium vodka is another area that may not have room for more competitors.
Brands like Grey Goose, Ketel One and Belvedere have developed loyal followings, with bottles selling in the pricey $35 range, but Silverstein wonders if the market can support newer versions that cost even more.
For its part, the maker of one new premium vodka brand says it is doing just fine. Allied Domecq Plc's Stolichnaya late last year created Stoli Elit, which sells for $59.99 a bottle. A company spokesman declined to give sales figures, but said demand for the new product has been exceeding expectations.
As Americans get more accustomed to luxury, the challenge for marketers will be to keep offering innovative products, said Pam Danziger, head of retail consultant Unity Marketing.
"They need to keep it special, enhance the value of it from a luxury perspective," she said. Otherwise, "the luxury market is as subject to the vicissitudes and ups and downs as in any other consumer market."
The other night I got extra cheese on the pizza.
Yes, but impoverished in spirit we are.....
Glutton!!!!
Courtesy of a mountain of debt not to mention trillions in unfunded gubbermint liabilities
What are we going to do with all this excess cash flow? Bigger SUV or marble walls inside the outhouse would be high on the list.
I always thought that Bill Hummer was married to Hillary B!tch...
Washington D.C., the Republicrat and Demopublican parties and government parasites everywhere are largely responsible for it.
...actually, there was a whole bunch of them.
I fought off the temptation and just bought a can of tea.
What do you mean -"impoverished in spirit"? Spirituality level 86 proof, and trying to go higher...
The godless have put their trust in riches, and made money their master.
-"God will not be mocked forever."
---Thomas Jefferson
Most of these consumers are probably leftist yuppies who buy $30,000 platinum-encased cell phones from Nokia and then complain about rich conservatives grinding down the poor.
And the Chinese just keep laughing...and waiting...
Somewhere, there are a bunch of Russians making comments about fools and parting their money from them.
No mention of $8,000 bicycles.
Hate to tell you, but $500 isn't much over the average of $300+ for leather fashion satchels available in any suburban mall/department store.
"A lot of people are attempting to compete with Coach, but nobody is able to really compete," he said."
Not true. Coach is considered a brand for mostly middle age, middle class professional women. Younger ones go for brands like Kate Spade (sold at places like Neiman-Marcus). Coach is just more visible because, not only does it sell from department stores, but also from its own stores in malls.
Only the middle class thinks these brands are luxury goods. The more affluent look down their noses at the brands mentioned in the article. Not exclusive enough.
And don't get me started about shoe-shoppin'!
"The godless have put their trust in riches, and made money their master. "
No, they figure if they're going to go to church, they might as well ride in a Hummer.
Stolichnaya in Russian means "crap vodka".
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