These days being rich isn’t what it used to be. Although the stock market and the S & P index have recently set new record highs, and real estate seems to be bouncing back, “ultra affluent” consumers aren’t spending as freely as they once did when the economy was flourishing, and safe bond yields were robust.
In 2012 consumers with annual income of $250,000 or more — people with some disposable income but not the super wealthy — spent 19 percent less than the previous year, according to data from Unity Marketing, a market research firm focusing on affluent customers.
Consumers in this income bracket are termed the “ultra affluent,” a demographic niche not to be confused with the super wealthy.
The super-wealthy with a net worth of $25 million or more are also cutting back, spending more on vacations and home renovations rather than on luxury clothing, cars and jewelry, according to the Spectrem Group, a Lake Forest, IL research firm.
Travel may be widely popular among the super wealthy because it provides an experience, and a memory which does not wear out or go out of fashion like luxury clothing.
The ultra-affluent, with substantially less disposable income than the super-wealthy, spent $96,568 on personal and household luxuries including travel in 2012, the lowest since 2007, Unity Marketing reported.
Posting the biggest decline was the $32,283 spent by ultra affluent consumers on personal luxuries, a 26 percent decline.
A previous high for spending in this category hit $167,919 in 2010, reflecting strong post-recession demand.
A group which earns yearly from $100,000 to $249,999, referred to by Unity Marketing’s President, Pam Danziger, as “Henrys” — High Earner Not Rich Yet — cut spending in 2012 by eight percent to $34,958.
Although spending on luxury goods and services increased by five percent in all the Americas, pegged to a constant-currency basis, it was significantly lower that the 13 percent gain of 2011, according to estimates from Bain & Company.
Behind the decline, says Ms. Danziger, is a perception of the ultra affluent that they’re only middle class, and therefore spend accordingly.
“The rich have lost their exuberance,” she says. “They do not feel as wealthy. They increasingly feel that their wealth is threatened, real or not.”
As ultra affluent spending declines so do the bottom lines of up-market retailers and brands.
Among the luxury firms selling apparel and accessories feeling the pinch, according to Ms. Danziger, are: Prada, Armani, PPR SA’s Gucci, Dolce & Gabbana Srl, Hermes International SCA, and Gianni Versace Spa.
PPR, which owns Gucci, provides a telling example of declining sales. Growth of luxury sales in North America for the firm slowed to a lethargic eight percent in Q1, down from 20 percent for the previous year.
Some premium brands, as opposed to luxury brands, are enjoying vigorous growth. Michael Kors, for example, in a recent filing reported a 41 percent increase in North American comparable store sales, exceeding the previous year’s gain of 38 percent.
Theese sales numbers perhaps reflect a trend in buying which mixes high-cost and low-cost fashion, which showed up some years ago, and is now more prevalent among the Henrys and ultra affluent, says Ms. Danziger.
This growing trend has also been noted by Milton Pedraza, CEO of the Luxury Institute, a New York research firm which tracks buying habits and preferences of high net worth customers.
“[Customers] are discerning to a fault these days,” says Pedraza. They buy “high-quality yet low-cost products” so they can “splurge on the superb luxury product.”
Buying trends are cyclical, and may be of long or short duration, but eventually most of them end and are replaced by a new trend, or by a reinvigorated old trend.