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Findings From American Express Business Insights, IBM Indicate Promising Year For Retail

  • Written by Alicia Fiorletta

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Mercedes-Benz Fashion Week is a must-attend event for fashion designers, buyers and tastemakers to get a first-hand look at the season’s hottest trends. At the same time, Fashion Week provides retailers with a primary opportunity to get a glimpse into shoppers’ preferred clothing and accessory styles, as well overall sentiment on spending.

In an effort to help merchants better understand these key areas, American Express Business Insights released in-depth data into the demographics and purchase behaviors of luxury consumers. Results revealed that in light of an insecure job market and turbulent economy, Generation Y consumers ramped up their spending on luxury goods, increasing purchases on premium luxury fashion by 33% in 2011 over 2010. This is a positive bounce-back after the stagnant results from the recession, according to Edmond Jay, SVP of American Express Business Insights. The results also point to a new market for luxury retailers to communicate with.

“Luxury was the fastest market to recover from the recession,” Jay said. “We specifically looked at younger generations to see how this emerging market behaved, and they responded strongly to luxury. We also noticed that a lot of shoppers who didn’t normally shop in fashion and luxury suddenly decided to start after the recession was complete. These consumers also came back more consistently versus the ‘traditional’ luxury shopper.”

The new findings from American Express Business Insights were gathered through analysis of in-store, online and mobile spending at premium and discount luxury merchants from 2009 to 2011. American Express leverages proprietary transaction data from its network of approximately 90 million cards across 125 markets.

Gen Y shoppers also led the pack in online spending. The category’s purchase rates increased 31% from 2010 to 2011, according to American Express research. Gen X consumers followed shortly behind, experiencing a 23% boost in Internet buying. “The recession almost acted as a catalyst for online spending,” Jay said. “We have this new group of consumer that is the key reason why the luxury market is actually higher now than it was before the recession.”
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Study results indicated that while younger shoppers are more eager to buy luxury items, they also focus on completing more cost-friendly purchases. This “barbell effect” makes the middle, mass market more competitive, Jay noted.

“American Express saw that consumers liked either the premium end of the market, or well the value-driven side, especially within fashion, lodging and dining,” Jay said. “The middle area was not as desired. Either consumers wanted something very value-driven, or they wanted a real experience.”

Although Gen Y shoppers are more eager and willing to purchase luxury items, this category also has a wider variety of brands they browse and buy from. As a result, merchants must be innovative in their approach to win and obtain loyalty from this consumer base, Jay noted. “Unlike older generations, Gen Y is less brand loyal and willing to experiment with luxury brands, providing an excellent opportunity for luxury marketers,” he said.

Sentiment for luxury goods overall was positive, especially within full-priced online spending, which increased 25% during 2011 across age ranges. Surprisingly, these results exceeded purchases completed via flash sale sites. The discounted goods category experienced a sales boost of 21% among Average Spenders, which is a considerable drop from the 92% boost that took place in 2010 among the consumer group.

While the U.S. acknowledged consistent growth within the luxury market, results from the study revealed that Europe continues to struggle in economic crisis. During 2010, spending within the luxury market remained flat across France (0%), Italy (-4%), and the U.K. (-2%). This downward trajectory was consistent in 2011, according to the study. Spending fell 6% in France, 11% in Italy and 5% in the U.K. during Q4 2011.

Q1 2012 Predictions Spotlight Significant Growth For Men’s Apparel
The growth that took place in the U.S. luxury market is expected to trickle into other markets throughout 2012. IBM’s recent forecast of retail verticals, including women’s and children’s apparel, home furnishings, footwear, and health and beauty, revealed positive growth across the board, with men’s apparel expected to have the highest boost in purchases. 

By March 2012, income in the men’s apparel sector is expected to reach $689 million, an 8.26% increase versus the same period in 2011. IBM also predicted home furnishings to experience a growth of approximately 7%, rising from $7.7 billion to $8.0 billion. 

“The forecast of men’s apparel sales reflects a growing trend: men are definitely developing a taste for fashion – especially in business attire,” said Jill Puleri, Global Retail Leader for IBM Global Business Services, in a press statement. “They’re tired of the khaki pants and golf shirt uniform that ruled many offices for the past couple decades. They’re looking to dress more stylishly – choosing items like skinny ties and suspenders that present a more polished look.”

Other key predictions from IBM’s forecast for March 2012 include:

-Health and Beauty will remain the most profitable market, reaching $24.4 billion;
-Women’s apparel will reach $3.3 billion, a 2.44% year-to-year quarterly increase;
-Children’s apparel will grow from $365 million in March 2011 to $383 million; and
-Footwear sales results are expected to improve 3.52%, growing from approximately $2.2 billion to $2.3 billion.

The IBM forecast is gathered from 22 years of historical data and analytics software in an effort to spotlight long-term trends and seasonal peaks. IBM consultants tap into predictive techniques to address complex issues of supply and demand. Results were gathered from U.S. Census Bureau economic data.