Special Report June

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1 Special Report June Special Report June 2012 By Nikoleta Panteva and Agata Kaczanowska Fluctuating incomes and changing values have altered what consumers consider luxury, pushing a new bunch of industries into the spotlight. Americans have opted for more subdued, conscientious and functional versions of luxury Without a doubt, the Great Recession changed the way Americans shop. Economic indicators of consumers ability and willingness to spend dropped as a result of the bursting housing bubble and ensuing unemployment. The consumer sentiment index, which measures consumers feelings about current and future financial stability, crashed 25.0% in 2008; per capita disposable income fell in 2009, marking its first decline since As a result, shoppers quickly cut out many discretionary purchases. As the economy slowly rebounds, consumer values and spending habits are shifting. Instead of returning to those discretionary purchases that they previously cut and readily splurging on luxury goods like full-priced jewelry or sports cars, Americans have opted for more subdued, conscientious and functional versions of luxury. Some shoppers are retaining their priceconscious spending habits, looking to discount retailers and websites to satisfy their luxury and brand-name desires. Others are making exceptions and loosening their purse strings for custom goods, which give buyers a sense of ownership while denoting elevated status. Others yet are shifting their increasing incomes to the booming green movement, which directs spending toward products and services that are good for the environment, their health and their luxury needs (since organic and eco-friendly goods are more expensive). Although not all of these are new habits, people s willingness to pay for such luxuries despite still-tight budgets demonstrates the importance of maintaining a high-end lifestyle for many consumers. And as people alter their luxury spending, many industries stand to benefit. In fact, IBISWorld expects these industries, which are just a small sample of those that can benefit from the postrecessionary shift in consumer values, to generate more than $1.5 trillion in revenue in Price conscious Following the recession s blow to consumers budgets and willingness to spend, shopping habits have changed. Even as the economy slowly chugs into recovery, consumers will continue in their budgeting ways. Luckily, there are a slew of options available for the price-conscious indulger. In the virtual space, websites like Gilt.com, HauteLook.com and RueLaLa.com offer consumers deep discounts on designer apparel, accessories and shoes for a very info@ibisworld.com

2 Special Report June limited time (typically 24- to 72-hour periods). These flash sale websites (IBISWorld report OD5438) have enjoyed substantial growth over the five years to 2012 precisely because shoppers have continuously sought out high-end items at affordable prices. Since 2007, an estimated 73 new sample sale websites have popped up, expected to total 89 by year-end Enjoying mounting attention, these retailers have expanded their product offerings to capture an even larger share of consumers disposable dollars. Initially they offered primarily women s fashions, but now sample sale sites sell men s and children s apparel, travel deals and city-specific and entertainment discounts (e.g. restaurant vouchers and attraction deals). Another set of operators that is benefiting from consumers tighter budgets is the expanding lot of daily deals websites (OD5452). These sites sell vouchers for physical goods or local services; consumers then redeem their purchased voucher at the participating establishment at no additional cost. Deals offered through this industry include restaurant and retail discounts, personal pampering service discounts (e.g. massages, manicures and haircuts) and physical goods discounts (e.g. apparel, artwork and home goods). The industry s success has relied on the post-recession deal-seeking behavior of Americans, which has pushed the number of daily deals websites from four in 2007 to an estimated 632 in The wide array of product and service offerings has helped the industry grow exponentially. Day-spa and nail salon franchises (OD5604) have also performed strongly as a result of price-conscious luxury seekers. 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. This nearly recession-proof industry (revenue declined only slightly in 2009) has expanded its presence through metropolitan areas over the past five years and has even begun infiltrating smaller, more suburban neighborhoods. The total number of operators has increased from about 5,003 in 2007 to an estimated 5,406 in The physical expansion, along with a growing menu of services and products, has kept budget-minded consumers coming back to these establishments. 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. Other industries that provide smaller indulgences include lipstick, nail polish and chocolate manufacturers. Personalized Consumers are continually willing to pay more for personalization, not only because it is customized to suit their preferences, but also because they have a greater sense of involvement and ownership. A luxury customer wants to be first, wants to be treated special, wants everything customized and wants to be treated in a personal way, says Connie Livsey, director of beauty and lifestyle at Harper s Bazaar. Personalization can be achieved through technology, product development or experiences. For example, Apple products come in various sizes, colors and memory capacities, with the option of free engraving. Buyers can also personalize them with additional software and programs. Such options help make consumer electronics (IBISWorld report 44311) easier to use and make many users feel more connected to their products. There are a variety of other products that can also be personalized. Many

3 Special Report June department stores offer makeovers or personal shopping assistance upon request, then cater to individual preferences. Sleep Number beds are adjusted manually by users, while memory-foam mattresses contour to each person s body (OD5330). Even cars can be personalized: Whether at the lot or online, consumers can choose their preferred model, color and features. Personalization is also helping to capture consumer interest to stimulate sales. Advertisers leverage consumer information to appeal to preferences in a more relevant manner. This strategy occurs beyond search engines and social networks (51913a and OD4574), which are the heaviest centers for gathering such information. Amazon.com recommends items based on consumers prior purchases and searches, and American Express integrates credit card customers data with their Facebook profiles to offer personalized awards. Grocery stores, such as Pavilions, even customize coupons for products that compliment a customer s purchases or to advertise alternative brands. Pure After years of economic volatility and financial uneasiness, consumers are slowly gaining confidence and beginning to spend again. But this time around, the discretionary items or luxury goods people are choosing to splurge on are different. With the increase in health consciousness and knowledge of genetically modified foods and harsh pesticides, luxury seekers are purchasing organic and more natural goods. Buying organic produce from grocery stores and farmer s markets is definitely a luxury since organic goods are significantly more expensive than conventional produce in most locations. In Los Angeles, for instance, a 48 count of green onions costs $48.00 for organic and $10.00 for conventional, according to the Rodale Institute. Because of the trend toward organics, vegetable markets (IBISWorld report 44523), supercenters and grocery stores are experiencing skyrocketing demand for organic produce, with companies such as Kroger and Walmart increasing their organic offerings just to satisfy customers. This trend has spread further than produce, too: Frozen-food producers and cookie and cracker producers are also offerings organic items. The desire for organics is only expected to expand, and their high prices compared to conventional food products will keep them in the luxury category going forward. Hand in hand with organic food is Americans increasing tendency to splurge on fitness industries. People who lead healthy lifestyles are more willing to dedicate time and money to fitness. Gym memberships and fitness classes are often pricey, so 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. Along with food and fitness luxuries, consumers are spending their hard earn cash on eco-friendly goods. High-end reusable grocery bags, expensive natural cleaning products and eco-friendly clothing are some of the many goods wealthy Americans are purchasing. Not only do these products help preserve the earth, but purchasing them also makes a public statement about a person s values. In order to be eco-friendly, though, you have to have the money for it: Ecofriendly goods are typically more expensive than comparable conventional products due to their more expensive raw materials. As a more extreme luxury, eco-friendly cars are piquing Americans interest. The Toyota Prius is already a popular hybrid car and costs at least a few thousand

4 Special Report June About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call dollars more than its gas-comparable vehicle. On the other end of the ecofriendly auto spectrum are high-end Teslas and Fiskers, which are exceedingly expensive. Eco-friendly cars generally have electric or hybrid-electric engines. Due to the complexity of their construction, their prices are much higher than standard gas-engine vehicles and, thus, appeal to consumers with larger budgets who are seeking ecofriendly luxury. Contact: Savannah Haspel VP, Public Relations IBISWorld Phone: savannahh@ibisworld.com

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