Ledbury Research, specialist luxury market research firm, discusses post GFC bonuses in the banking industry and what it means for spending in 2011
CONSUMERS
Less Bonuses for Bankers, Less Spending on Luxury Goods
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Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
Ledbury Research, specialist luxury market research firm, discusses post GFC bonuses in the banking industry and what it means for spending in 2011
Ledbury Research, specialist luxury market research firm, discusses post GFC bonuses in the banking industry and what it means for spending in 2011
At this time of year bankers’ bonuses are in the spotlight as financial institutions announce planned bonus pools for performance of the preceding year. This year’s payouts are attracting more attention than usual, not only from political commentators, but also the industries that rely on these financiers’ spend: from art, through property to luxury goods. At the height of the boom, US bankers spent close to two thirds of their bonuses on luxury (Prince & Associates).
While finalised figures are not yet available, the latest report from the New York State Comptroller predicts that average bonuses will contract slightly, down to $130,000 on average. Though this is significantly less than an average of $190,000 in 2006, it is down only 9% on last year. Despite weak performances in the latter half of 2010, several of the big investment banks have decided not to reduce payouts commensurately with the drop in annual revenues, with a view to maintaining competitive compensation figures (New York State Comptroller).
“ at the height of the boom, US bankers spent close to two thirds of their bonuses on luxury ”
Outside the US, it is a more positive story. In the UK, though total City bonuses are expected to fall to £7.0bn, down from £7.3bn in 2009 (CEBR), individual bonuses are expected to rise as the number of employees that this pool is shared between has dropped. Separately, 59% of bankers in Hong Kong, Singapore and Australia saw their bonuses increase on 2009, as did 56% in the US and 49% in Britain (eFinancial Careers).
Although this is good news for bankers, the financial crisis has thrust compensation into the political spotlight. Newly instituted regulations like those of the Committee of European Banking Supervisors (CEBS), have the potential to negatively impact those brands who rely on bankers’ bonuses for their business. The new CEBS regulations require all European banks to restrict cash payments to 20-30% (of the total bonus), with 40-60% deferred for a minimum of 3 years. Historically, bonuses were paid out in Spring, causing a flood of sales across the luxury landscape; this year, though the bonuses will have been awarded, they cannot be spent.
“ bonuses shrink by 40% and luxury spend drops by 80% ”
In other words, even if individual bonuses drop or actually grow, the luxury market needs to be prepared for a more frugal time. This can be seen in the UK, where the bonus pot has shrunk 40% from 2007 to 2010. However, Savills estimate that about £5bn of City bonuses were spent on prime property in 2007, but this will shrink to just £1bn. Bonuses shrink by 40% and luxury spend drops by 80%.
Ultimately banks may change their remuneration structures to pay more upfront in the form of salaries, however this year disposable income among this group may well be lower than in previous years, meaning tougher times for luxury brands reliant on this high spending audience.
The above is an opinions article taken from Ledbury Research’s flagship publication High Net Worth. For more information please visit this link.
