SOURCE: Luxury Institute

March 07, 2007 11:00 ET

Quantifying the Wealth Effect: How Wealthy Consumers Respond to Weakness in Stocks and Real Estate

NEW YORK, NY -- (MARKET WIRE) -- March 7, 2007 -- U.S. stocks just endured their worst weekly decline in more than four years. Meanwhile, residential real estate values are in retreat nationwide. So what is the likely impact of these negative economic developments on the spending behavior of America's wealthiest consumers -- the most crucial demographic segment for a wide range of high-end industries?

According to a survey by the independent New York City-based Luxury Institute most wealthy Americans do not plan to adjust their shopping and spending habits at all, regardless of their investment performance or any change in the value of their real estate holdings. However, a significant slice of this wealthy demographic does have a threshold of financial pain and these consumers say that they would cut back on luxury expenditures if setbacks become severe enough, and they have a good idea where they would scale back spending. (Results of the survey are available online exclusively to members of the Luxury Board (, the Luxury Institute's online community for global luxury professionals).

Forty percent of consumers, with a minimum annual household income of $150,000, say that a decrease in the value of their assets would cause them to consider purchasing fewer luxury goods and services. Understandably, higher incomes and higher levels of net-worth tend to insulate individuals somewhat from negative financial fluctuations: 30 percent of consumers with incomes over $500,000 and 33 percent with a net-worth in excess of $5 million say they would consider spending less. Wealthy women, however, are more sensitive to financial setbacks: 47 percent say they would trim spending in the face of reduced wealth, versus 37 percent of men.

Which high-end industries would bear the brunt of any retrenchment in spending by the wealthy? Luxury hotels and resorts appear to be most vulnerable. Nearly half (49 percent) of wealthy consumers who say they would reduce spending list this as one area they would target. Forty-two percent say they would spend less on luxury automobiles, 39 percent identify luxury jewelry as a place to cut back.

Not all segments of high-end travel appear to be especially at risk. Fewer than one in six of the wealthy who say that they would reduce spending would tone down spending on destination clubs, private jet services, yachts and yacht charters. Other areas that seem to be resilient are those where expenditures are at a low absolute level. Just one in ten say they would trim spending on luxury consumer publications, business and finance publications or bathroom fixtures.

The good news for luxury goods and services firms is that neither stocks nor real estate have yet to undergo a correction that will cause significant numbers of wealthy Americans to draw in their horns. On average, wealthy consumers say that it would take a 19 percent drop in the value of their stocks before they would consider cutting back on spending. Just 15 percent said a correction of less than 10 percent would prompt a reduction. Similarly, real estate values need to decline 17 percent on average to cause a pullback in spending, with only one in eight saying that a drop of less than 10 percent would make them spend less. Perhaps in some of the more speculative markets this has already happened, but nationwide the year-over-year fall in median home prices is still in the low single-digit percentages.

About the Luxury Institute

The Luxury Institute is the uniquely independent and impartial ratings and research institution that is the trusted and respected voice of the high net-worth consumer. The Institute provides a portfolio of proprietary publications and research that guides and educates high net-worth individuals and the companies that cater to them on leading edge trends, high net-worth consumer rankings and ratings of luxury brands, and best practices. The Luxury Institute also operates the Luxury Board (, the world's first global, membership-based online community for luxury goods and services executives, professionals and entrepreneurs To reach the Luxury Institute, please call 646-792-2669 or go to

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