Political turmoil turns luxury cosmetics market on its head

By Simon Pitman

- Last updated on GMT

Related tags: Unity marketing, Luxury good, Cosmetics

Security threats have already made the headlines this week, but now
it seems that general global political instability is affecting
consumer confidence relating to luxury cosmetic and fragrance
purchases.

According to the latest report from Unity Marketing, US confidence has slipped noticeably amidst growing doubts about current political problems worldwide and continued fears about the future of the country's economy.

The research company's latest figures show that consumer confidence fell 14 points to reach 99.2 for the second quarter, down from 113.2 in the first quarter of 2006.

Despite the knock in consumer confidence, spending has been little tempered in the luxury category as a whole. According to Unity Marketing, spend on luxury items in general during the second quarter of this year - which includes luxury cosmetics, toiletries and fragrances - was $221.8bn, an increase of 0.7 per cent over the same period in 2005.

However, breaking this figure down, the personal luxuries market, which includes cosmetic and fragrance products as well as fashion, jewelry, watches and wines, fell 8.7 per cent to reach $29.9bn.

Indeed, the only category to buck the downward trend was that of experiential luxuries, which grew 10.7 per cent to reach $82.8bn during the quarter.

The growth of this category includes spend on spa and beauty salon treatments, a niche category that has been growing significantly in popularity during the course of the past year and has been hotly tipped for further growth if positive market conditions prevail.

Although the drop in consumer confidence was not translated into the figures for luxury spending, market experts believe that the knock-on effect could be felt during this, the third quarter of the year.

Pam Danziger, Unity Marketing president, said that her company's research shows that how shoppers feel about their personal financial health has declined. This, combined with the fact that outlook for financial prospects for the next 12 months has also declined, leads Danziger to believe that prospects for the rest of the year are not looking positive.

"Most significantly, luxury consumers' feelings about the financial health of the country declined the most,"​ Danziger said.

"At the close of the second quarter, nearly half (47 per cent) of luxury consumers believed the country was worse off compared to three months ago. Only 16 per cent felt it had improved."

Unity Marketing economic forecaster Thomas Bodenberg pointed to a number of factors affecting this situation, including gasoline prices, inflation, a declining housing market and electoral uncertainty as all contributing to the uncertainty.

"Luxury consumers are also worried about the impact of continued unrest in the Middle East, Iraq and Afghanistan,"​ he said.

The fact that the Unity Marketing report reflects a significant drop in consumer confidence on luxury spend coincides with reports this week that the luxury end of the market may also be hit by the recent terror threats, which led to 24 arrests of suspected terrorists in the UK last week.

British intelligence believed it had foiled an attempt to blow-up planes en route from the UK to US airports.

Although the action may well have averted a major catastrophe, it might have significant repurcussions on consumer spend on luxury cosmetic and fragrance products.

This comes about after airports all over the world were closed in response to the action and safety measures were employed to prevent passengers hand-carrying personal care and fragrance products on board airplanes, which is expected to lead to a big drop in airport retail purchases.

The move is expected to have a significant impact on the luxury end of the cosmetics market, which derives a high percentage of its sales from retail outlets at international airports.

Indeed the news led premium-end cosmetic company Estee Lauder to draw attention to the potential impact the current might have on the results for its current quarter.

In its trading statement for the last quarter, the company said that in view of the fact that 7 per cent of its total sales are derived from international travel, recent security alerts at international airports could impact sales for the current quarter.

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