Is Full-Price Luxury Spending Back in Fashion?

The proliferation in recent years of flash sale-websites has fostered a taste for full-price luxury spending, according to a recent American Express Business Insights report.

Flash-sales sites are a billion-dollar industry born of the recession. Sites such as Gilt.com. Ideeli.com and Rue La La offer members luxury items at deep discounts. Limited inventory and time allotted to make a purchase add a competitive component to the experience.

But American Express data finds surprising evidence that flash-sale sites have given shoppers such an appetite for luxury fashion that they are patronizing full-priced online sites in increasing numbers. Whereas in 2010 flash sales surged among so-called Average Spenders (consumers who fall outside of the top 10 percent of spenders) surged 92 percent over the previous year, this gain dropped to 21 percent last year. Meanwhile spending at full-priced luxury websites increased to 25 percent in 2011 from 20 percent in 2010.

The Top Spenders reported a 17 percent gain in full-priced only luxury retail spending in 2011, compared to a five percent gain in flash-sales.

Gilt Groupe and Rue La La each recently reported layoffs of about 10 percent of their workforces. Observers say that the downsizing may be a combination of factors, including a faltering of the flash-sale business concept or a reflection of the companies’ aggressive grown, according to the Centurian, an e-newsletter for prestige jewelers.

The biggest spenders? Even more surprisingly, it’s Gen Y, the roughly 70 million Americans born between 1977 and 2002, and who represent the smallest segment of luxury consumers. The report found that these consumers, also known as Millennials, increasing spending on premium luxuty fashion by 33 percent in 2011 over the previous year. They also gew spending the most in full-priced luxury retail by 31 percent last year over 2010, compared to Gen Xers at 23 percent, baby boomers at 19 percent and seniors at 6 percent for the same period.

Seniors, meanwhile, have developed a propensity for online luxury bargain hunting. They led all other age groups in spending growth for online luxury flash sale websites last year at 28 percent, followed by Gen Y at 19 percent, Gen Xers at 12 percent, and boomers at 9 percent. Their overall spending at brick and mortar premium fashion stores declined by 1 percent last year over 2010.

Internationally, European consumers have pared back their luxury retail spending as the ongoing Eurozone economies continue to struggle. All of the European regions surveyed saw declines during the fourth quarter of 2011 over the same period the previous year. At 11 percent, Italy saw the biggest decline in luxury spending, followed by France at 6 percent and the U.K. 5 percent.

Analysts regard a return to paying full-price for luxury items as a sign of increasing consumer confidence. A Millionaire Corner investor survey conducted before the holidays found that younger consumers under 40 were significantly more likely than older age groups to say they would be spending more money over the holidays.