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Why Are the Young and Less Wealthy Leading the Luxury Rebound?

Tiffany, LVMH and luxury labels around the world are seeing sales bounce back, and the sound of ringing cash registers is drowning out memories of the recession. According to the WSJ’s Robert Frank, the people leading the luxury rebound aren’t necessarily who you’d expect.

Old money is giving way to young luxury. Images from Burberry's Art of the Trench

A study by American Express Business Insights found a few interesting patterns emerging from data on Amex cardholder spending.

In other words, the very wealthy aren’t the ones leading the rebound in luxury spending. The question then turns to why? After all, unemployment is still stubbornly high, particularly for younger and middle class Americans.

It’s important to keep in mind that when things got bad for luxury retailers they got really bad. Bad enough that even luxury merchandise was being marked down by as much as 70%. While luxury spending is rebounding, it’s coming off of some pretty deep lows.

As far as total dollars spent, the current luxury category is likely still smaller than it was pre-recession. Just to attach a random number, if consumers spent $10 billion on luxury items in 2007, $4 billion in 2008, $4.5 billion in 2009 and $5 billion in 2010, spending is up but still has a way to go before wiping out recession period losses. Which means that even if the percentage of younger, less affluent luxury shoppers is increasing, the total dollar amount they’re spending is probably still lower than what the very wealthy were contributing. Since so much of the pre-recessionary spending was based on bubbles and debt, that may not be a bad thing.

During that period websites like Gilt, who offered discounts on luxury items, saw massive growth selling luxury items at 50, 60 or even 70% off. E-commerce and online spending weren’t hit as deeply as brick and mortar stores during the recession and both have had pretty amazing growth over the past holiday season – up to $1 billion per day during certain pre-Christmas shopping days.

It’s not impossible that these sites are introducing new customers to luxury brands at a more affordable price point, and some of those customers continue to buy from the brands after the initial discount. Or, that they’re learning to wait for the next sale and do their luxury shopping at a discount.

Finally, continuing in the online vein there’s the rise of social media. A significant number of fashion and luxury brands finally stopped ignoring the internet in 2010. Not just that, but a few actually moved past tolerance to full fledged involvement. It wasn’t universal, but a number of brands were interacting with fans on Twitter and Facebook, creating their own networks and content, engaging bloggers and communities.

Who are the people spending the most time and money online? We’d bet they have a profile very similar to the luxury Newcomers. They may not have the dollar for dollar spending power of the wealthiest 10%, but at a time when shopper for shopper the rich prefer Macy’s to Neiman Marcus, Newcomers are likely to remain luxury’s best hope for growth.






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