Although many economists predict the economic and housing industry recoveries will be long and slow, glimmers of a rebound are emerging. The good news for the custom home building segment is that even though financial portfolios have been hit hard and lending institutions are continuing their tight grip on credit (particularly for large construction loans), affluent consumers still have money. They are being more selective in their spending choices, however.
According to the latest “Luxury Tracking Report: Consumer Spending Trends” survey conducted by marketing consulting firm Unity Marketing, a year-over-year increase in spending on luxury goods and services suggests that affluent consumers’ economic confidence is bouncing back. For a majority of those surveyed, the worst of the recession appears to be over, with 48 percent predicting that their personal financial situations will improve over the next 12 months. Unity’s Luxury Consumption Index (LCI), which provides a measure of luxury consumer confidence, gained 18.6 points in the second quarter of 2009—the largest increase since the firm began tracking data in 2003. The average amount affluent consumers spent on home luxury products, such as furnishings and décor, increased 17.6 percent from the first quarter to the second quarter of 2009, following a rise of 16.3 percent from fourth quarter 2008 to first quarter 2009.
In particular, affluent homeowners’ spending on outdoor living products—such as patio furniture, grills, lighting accents, fencing, outdoor stoves and fireplaces, garden shelters, water features, and decorative accents—has increased steadily in the past two years. Luxury outdoor living purchases among those surveyed rose 22.6 percent from 2007 to 2008 and climbed another 33 percent in first quarter 2009, compared with the same period in 2008.
“Affluents have cut back on travel and dining out, but they are spending more on the home overall,” says luxury marketing expert Pam Danziger, president of Unity Marketing. Many of the affluent consumers surveyed in Unity’s report have made significant improvements to their houses and are now turning their attention outside the home, creating living spaces that allow them to enjoy the outdoors.
Overall, the average amount spent by affluents on luxury products and services rose by nearly 11 percent in 2009’s second quarter (compared with second quarter 2008), but this positive trend is offset by a decline in overall luxury spending from the first quarter of 2009. Despite the reported increases, Danziger says affluents aren’t likely to return to the exuberant spending patterns they exhibited before the recession.
“Unity’s research shows that affluent consumers’ basic attitudes and motivations that underlie their patterns of consumption are changing, and these changes are likely to outlast the economic downturn,” she warns.
Danziger explains that luxury consumers want to maximize their spending and are looking for a combination of high quality and good value. Many affluents are now making an effort to bargain over prices to ensure they get a good deal. While many still may be concerned with making status purchases, most affluent consumers are more interested in learning how a product’s features and benefits translate into quality.
Anyone in the business of marketing anything—a product, a house, a service—to high-end consumers “needs to recognize that the luxury market is not going to go back to the way it was before,” Danziger explains. “The boom period was great, but it’s over. Luxury consumers have really changed their shopping behavior in the current environment. A new ‘normal’ will emerge, and it will be much more reserved. There will be much less spending than we’ve seen previously.”
For custom home builders, that means getting creative and helping clients set their priorities for their home building or renovation projects. One may prefer to emphasize a showcase kitchen, for example, while another places more importance on a media room or on outdoor living. Thoroughly understanding their new, possibly more conservative, priorities and motivations—and helping them identify ways to economize while still achieving a high-quality result—will ensure that collaborations with high-end clients are, indeed, successful.
