ET Insider – January 29, 2008

Elite Traveler Insider –

January 29, 2008

Elite Traveler Insider

By Douglas D. Gollan, President and Editor-in-Chief, Elite Traveler Magazine  

Welcome to the latest issue of Elite Traveler Insider, the bi-weekly newsletter designed to update our top partners on trends in the private jet lifestyle. This information is provided to offer a better understanding of how to target these globetrotting elite travelers, their impact on your business and other trends that affect you. Remember, private jet travelers are paying up to $10,000 per hour to fly by private jet, so these super rich consumers could be and should be your best customer. We talk about them and how you can get more of them and more from them.

CONTENTS:

1. Shaquille O’Neil Spends A Storm and CEO Salaries

2. Two Surveys Show Mass Affluent Dive; Super Rich Spree

3. Executive Salaries Double in Britain

4. In Palm Beach, No Recession for the Super Rich

5. Small Business Softness Another Worry for Luxury Marketers

YOUR BEST CUSTOMERS ARE HERE: Elite Traveler delivers more readers (318,000) with a $1 million + Household Income than Departures (34,000), Robb Report (30,000), Town and Country (47,000), Vanity Fair (44,000) and The Wall Street Journal (128,000) combined. Source: Prince & Associates, MMR

1. Shaquille O’Neil Spends A Storm and CEO Salaries

Did somebody say athletes are cheap? The recent divorce filing from the NBA basketball star revealed that he spends over $100,000 per month on vacations, $60,000 per month on gifts, and yes, $23,000 per month on gas for vehicles.

At the same time, The New York Post reports new Goldman Sachs CEO Vikram Pandit is getting a $26 million bonus just three weeks into the job, days after the firm announced it would layoff 1,500 employees.

Of course, while Mass Affluent consumers are trying to figure out how to pay their minimums on their credit card bills as well as higher energy costs, the former Merrill Lynch CEO is probably trying to figure out how to spend some of his $50 million parting package; furthermore, new leader John Thain reportedly received a signing bonus of over $10 million as the Wall Street giant was reporting a $10 billion fourth quarter loss and widespread layoffs.

SUPREME LUXURY: 91% of Elite Traveler readers consider us “higher quality” than other magazines. Source: Prince & Associates

2. Two Surveys Show Mass Affluent Dive; Super Rich Spree

Two new surveys show that for luxury marketers, the “Trading Up” Mass Affluent are writing a new book, called “Trading Down.” At the same time, another theme could be “The Super Rich Saved Your Life” this past Holiday season.

Luxury consumer confidence by the Mass Affluent at the beginning of 2008 has never been lower, according to a survey of luxury consumers by Unity Marketing. Its Mass Affluent Luxury Consumption Index fell 23.8 points from the third quarter to 63.6 points in the fourth quarter of 2007, its lowest point since the Stevens, Pa.- based marketing consulting firm has been conducting the quarterly survey.

As Mass Affluent consumers’ confidence dropped, so did their spending on luxury goods and services, down more than 20 percent from the first half of 2007 to the second, according to the survey.

“Since Unity Marketing began its quarterly tracking study in January 2004, luxury consumers have never expressed such a dismal view of their financial status, their feelings about the direction of the country as a whole, and their plans for future spending.” says Pam Danziger, president of Unity Marketing.

As a result, luxury consumers are holding back on spending in the purely discretionary category of luxury, according to the survey of 1,281 luxury consumers (average income $155,700 and age 46.6 years). Their spending on luxury goods in the second half of 2007 dropped more than 20 percent.

At the same time, an Elite Traveler / Prince & Associates survey of 627 consumers with a Net Worth of at least $1 million, conducted January 10-18, found consumers with a Net Worth of under $10 million (Household Incomes typically fall under $400,000 and mainly in the $150,000 to $400,000 range) are heavily trading down to less expensive items and substituting luxury items in their now less rosy lifestyle. The sales cycle for these consumers to make purchases has lengthened; moreover, various trends toward tying in charities such as Susan G. Komen or environmentally-focused marketing efforts now to fall on deaf ears as concern reverts to their own pocketbooks.

While consumers with a Net Worth of $10 million to $30 million will continue buying luxury, their outlook is tempered, and there is “significant concern.”

The Prince survey suggests that luxury marketers need to concentrate their efforts to the $30 million + Net Worth category, where 80 percent of respondents actually plan to spend more in 2008. These wealthy consumers typically have a Household Income of at least $1 million (Elite Traveler, with over 300,000 readers in this category, is the number one publication in the world to reach the Super Rich market).

Super Rich readers also plan to give more to charity this year as they are being asked more and more to make up for the Mass Affluent who are cutting back. According to Russ Prince, President of Prince & Associates, “As the Ultra High Net Worth Super Rich ($30 million Net Worth +) increase their charitable contributions, they feel justified in rewarding themselves by continuing their lifestyle unabated.”

Ninety-two percent of the Super Rich bought jewelry this past Holiday, spending an average of $236,000, while 89 percent bought watches spending $121,000, and 93% purchased fashion and accessories spending $82,000 per household.

“Looking at the numbers by luxury companies from the holiday season, it is clear that spending by the Super Rich is what prevented a total collapse for luxury companies, and it is clear that luxury companies are going to have to completely refocus their marketing efforts to get a larger share of pocket from these high spending consumers in 2008,” Prince told Elite Traveler Insider.

Click here to find a complete copy of the Elite Traveler / Prince & Associates Survey.

OUR READERS LIKE WHAT THEY SEE: 88% of Elite Traveler readers like our “design and format”. Source: Prince & Associates

3. Executive Salaries Double in Britain

According to a report by Bloomberg, Britain’s top company executives doubled their pay in the past five years, widening the wage difference with the rest of the workforce.

The Incomes Data Services said, in a report covered by Bloomberg, the average salary for chief executives at companies listed in the FTSE 100 Index reached 3.17 million pounds ($6.5 million) in September, compared with 1.5 million pounds in 2001. The London-based pay researcher said that wages for full-time workers rose by 5,000 pounds to 30,000 pounds during the same period.

It also looks like salaries for top executives will continue to increase even as layoffs hit the Mass Affluent.

“There is a global war for top managerial talent and British companies have to pay the market rate, or risk losing the leadership that can make the difference between a company’s success or failure,” the CBI said.

In July, the Joseph Rowntree Foundation, which was founded by a 19th-century philanthropist to conduct research into poverty, said the gap between the most wealthy and the middle classes is at its greatest in 40 years.

BULLSEYE FOR YOUR AD DOLLARS: Only Elite Traveler delivers to luxury advertisers the Super Rich wherever in the world they happen to be via BPA audited distribution aboard private jets and mega-yachts in over 100 countries worldwide!

4. In Palm Beach, No Recession for the Super Rich

A recent story in The Palm Beach Post noted, “For Joe Lunchbucket, these are trying economic times. Home values are falling. Jobless rates and gas prices are climbing. The whiff of recession hovers over the economy. But for the fortunate few in the if-you-have-to-ask-how-much-it-costs-don’t-bother crowd, times couldn’t be better. Mansion prices are soaring. Sales of private jets and megayachts are brisk. The record-breaking numbers in the mansion market – where $100 million asking prices have become almost commonplace – and in the art world – where $30 million sales are run-of-the-mill – come in sharp contrast to the economic jitters that are shaking up the middle class.”

“When you get to a certain level of wealth, you don’t have to retrench when the economy takes a turn,” Jo Ann Engelhardt, managing director at Bessemer Trust, a private bank where the minimum to open an account is $10 million, told the paper.

According to the report, “Indeed, there’s little reason for the rich to cut back. The stock market, though choppy, remains near historic highs. Executive compensation follows an ever-upward trajectory. The Bush administration has cut taxes for the affluent.”

The ranks of the super-wealthy keep growing. A 2007 report by Merrill Lynch and Capgemini states that the number of people worth more than $30 million grew by 11 percent from 2005 to 2006.

The report states, “But the contrast between the moribund Mass Affluent economy and the soaring luxury economy is especially notable now, and especially here, where the rich fly in on their private jets to enjoy their oceanfront estates and megayachts.

“During the five-year housing boom, middle-class climbers felt wealthy as their homes posted double-digit gains in value. That feeling of instant wealth has subsided as the region’s housing bust puts a crimp in spending.

“Still, not every part of the housing market is hurting. Palm BeachCounty home prices, down 18 percent from their 2005 peak, are mired in a slump. But on the island of Palm Beach, home prices rose 24 percent in the first nine months of 2007, according to a closely watched report by real estate attorney Les Evans.

“In one sign of the buoyant mansion market in Palm Beach, real estate mogul Donald Trump is asking $125 million for the oceanfront estate at 515 N. County Road. The property includes 475 feet of oceanfront and a 48-car garage. “The market’s been very strong,” Trump said in a recent interview. “I’m not saying that it’s going to last forever, but it seems to be lasting.”

“Trump is confident enough in the mansion market that he reportedly turned down a $90 million offer from Stephen Schwarzman, the billionaire head of Blackstone Group.

Jim McCann, a top selling real estate agent in Palm Beach, told the paper, “There has been a lot of wealth created in the United States over the past 10 years. And those people who have made that money obviously are not shy about spending it. If you go to buy a luxury yacht or a jet today, you’re going to have to get in line.”

Private jet sales are not being impacted, according to the story. “Our business is booming,” said Gary Anzalone, marketing director for Aero Toy Store. “I don’t want to say we’re recession-proof. But the story here is the weak dollar.” With American products on sale because of the strong euro and pound, foreign buyers are flocking to Fort Lauderdale to buy jets, Anzalone said. Proving his point, a group of shoppers chatted in French with an Aero Toy Store saleswoman at the dealer’s showroom one day last week.

And while Joe Lunchbucket struggles to afford gas for his bass boat, the market for megayachts is booming, too. For instance, Trinity Yachts of Gulfport, Miss., builds floating palaces that sell for as much as $250 million.

The art market likewise is seeing a surge of demand. In two of 2007’s big-dollar sales, an Andy Warhol painting sold for $71 million and a Matisse fetched $33.6 million in November.

Edward Wolff, a professor at New YorkUniversity, notes that wealth increasingly is being concentrated in the hands of the fortunate few. During the past two decades, middle-class incomes have been stagnant, while much of the wage and income growth accrues to the wealthiest 1 percent of American society, Wolff said.

“As the middle class gets squeezed,” Wolff said, “the top end is making out like bandits.”

WOW: The Average Annual Household Income of the Elite Traveler reader is $5.3 million and Average Age is 41. Source: Prince & Associates

5. Small Business Softness Another Worry for Luxury Marketers

Small businesses in the past boom were encouraged more than ever to charge it. Companies such as American Express that previously offered only pay your bill in full charge service, aggressively pursued small businesses with charge cards.

As previously noted, American Express is taking a charge of over $400 million as its customers increasingly default on their obligations.

Small businesses have been a boom to the luxury auto industry, but Lexus’ decline in December sales showed that these small business owners are feeling the pinch. I guess there were a few fewer of those big red ribbons tied around a brand new Lexus this past Christmas (remember those great commercials?).

Commerce Bancorp., a New Jersey bank, reported on Friday that earnings fell by 47 percent. It sited an increase of bad loans 100 percent higher than the third quarter, and up 500% over the year prior fourth quarter.

The main culprits were home mortgages and loans to small businesses, whose owners are the core of the Mass Affluent economy.