Consumers cut premium purchases

16 June 2009

PURCHASE, New York: The growth of global credit card spending fell from 14.4% in 2007 to 10.8% in 2008, while consumers in many markets are no longer looking to buy goods that "just tell you what's in the bank balance," MasterCard Advisors' latest SpendingPulse survey says.

According to MasterCard's poll of spending habits around the world, credit card expenditure in the US increased by a total of 3.5% on an annual basis in 2008, compared with 10.5% the previous year.

In Europe, the expansion rate was essentially static, albeit at a reasonably high 16%, while Asia Pacific saw its comparative total increase by 3%, to a 20% year-on-year improvement overall.

However, luxury spending in the US declined by 24.6% in April this year compared with the same month in 2008, with much of Europe also witnessing a similarly challenging environment.

George Greer, head of European consumer credit and charge products at MasterCard, argued there are currently "three divergent continents" when it comes to the sale of premium goods.

"The impact worldwide has a regional flow," he said. "It started in the US and went over to Europe. But the Asia Pacific region seems at the present time seems to be faring better."

However, even within Asia, Greer argued there is a division between Japan, which has previously been termed the world's "only mass luxury market" but has now seen sales slow, and nations like China, where category revenues are continuing to rise.

MasterCard also conducted a survey of "high net worth individuals" in the UK and Russia, defined as individuals that own more than one property, travel outside their home country at least 15 times a year, and who have accounts with private banks.

Greer reported that the issues related by its contributors showed that there were some matters that have "become just as important to the affluent as to everyone else."

In particular, many respondents "are turning their backs on absolute ostentatious wealth. Products that show just wealth and don't show anything else are not in vogue. They don't want things that just tell you what's in the bank balance."

Some 40% of participants also said they had been "somewhat affected by the recession," although this demographic is also "a lot more resilient and a lot more confident" and "are not belt-tightening to the same extent as everyone else."

However, Greer added that 75% of Russia's wealthiest consumers, and 70% of their counterparts in the UK, are "spending less on luxury goods" and "are compromising on their shopping trends."

Furthermore, he argued that "staying in ... is the new going out even for the wealthiest consumers", who are "spending up to 30% more on better quality food and entertaining at home."

More broadly, while many Western European nations have seen sizeable drop offs in discretionary purchases, other markets have proved stronger.

Among these countries are Poland and Hungary, which are not "feeling the squeeze", but instead remain "buoyant and are a still in a growth mode, as the recession wave seems to be hitting them less strongly, although it might still catch up with them."

Data sourced from Financial Times; additional content by WARC staff